European Central Bank Governing Council Member Nagel: Interest rates should be lowered cautiously when approaching neutrality.

Member of the Executive Board of the European Central Bank and President of the Deutsche Bundesbank, Joachim Nagel, said on Wednesday that the European Central Bank should not rush to further lower interest rates, especially when borrowing costs are approaching a level that neither restricts nor stimulates the economy. Nagel said, "The closer we are to the neutral interest rate, the more appropriate it is to adopt a gradual policy." According to calculations by the staff of the Deutsche Bundesbank, the neutral interest rate is between 1.8% and 2.5%, slightly lower than the current deposit rate of 2.75%. Nagel said, "In the current uncertain environment, there is no reason to act hastily." He added, "Data will tell us where to go." Since June of last year, the European Central Bank has lowered the deposit rate by 125 basis points. Although analysts and investors are betting that the ECB will cut rates again next month, the situation after March is still unclear, and discussions among policymakers have become more intense. Eurozone inflation in January rose to 2.5%, and is expected to continue to reach the target level of 2% by 2025. However, some officials are concerned about the upside risks posed by rising energy costs and trade tariffs, while others are worried that the eurozone's weak economy could keep inflation below the target level. Nagel said, "We have not yet reached the inflation target, but I am very confident that we will reach the target by mid-year, so this is good news. The likelihood of inflation falling below the target level is low." Inflation data in the United States for January was higher than expected, indicating that global price risks persist, prompting traders to reduce their bets on the extent of rate cuts by the European Central Bank for the remainder of the year to 75 basis points. European Central Bank officials have different opinions on the exact location of the neutral rate. The updated estimate by the staff of the ECB last week was between 1.75% and 2.25%, but they cautioned against relying too much on this concept. Nagel said that making monetary policy decisions based on an uncertain neutral estimate is "risky," and emphasized that the ECB uses a variety of financial, real economic, and other indicators to make evaluations. He also warned against simply choosing the midpoint of any range, as this "might not be a satisfactory middle value."