FRANKFURT, Feb 9 (Reuters) – The European Central Bank’s policy rate is at the right level as inflation is likely to settle at its 2% goal after a short-lived dip, ECB policymaker Joachim Nagel said on Monday.
The ECB unanimously kept its main interest rate unchanged at 2% last week, but some policymakers remain concerned that price growth, which eased to 1.7% last month, might weaken too much, forcing the euro zone’s central bank to react.
Bundesbank President Nagel said the ECB would only act if its medium-term inflation expectations deviated “sustainably and noticeably” from target, but this did not appear to be the case.
“Many factors suggest that the current interest rate level is appropriate,” he said. “First, the (inflation) shortfall is short-term and small and, in the medium term, inflation is at our target.”
He added that long-term inflation expectations were “firmly anchored”, and measures of core prices, which strip out volatile items such as energy and food, also supported this view, as did an update of the ECB’s December projections.
Data published last week showed much of January’s drop in inflation was due to lower energy costs although services also saw a moderation in price increases.
“Small, temporary deviations – especially in volatile components such as energy prices – do not … require a change of course if inflation expectations are firmly established,” Nagel said.
He said this applied both when “the inflation target might be undershot” and when inflation risked running too high.
(Reporting by Francesco Canepa. Editing by Mark Potter)
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