European Central Bank’s Caution on Interest Rates

FRANKFURT (Reuters) – The European Central Bank should not rush to lower interest rates because inflation remains high and uncertainty is significant, ECB policymaker Joachim Nagel stated in a recent interview.

The Bundesbank president also conveyed his ongoing expectation for the Basel III global banking rules to be implemented in both the United States and Europe while dismissing a proposal from a German politician to include bitcoin in official reserves.

The ECB has cut interest rates four times since June and is predicted to continue this trend in the next six months. Inflation has decreased from double digits in late 2022 to slightly above the 2% target.

However, Nagel emphasized the necessity for a cautious approach due to ongoing high services inflation and a “high level of uncertainty,” possibly hinting at challenges related to global trade with Donald Trump’s anticipated return to the White House next week.

> “We should therefore not rush into anything on the path to monetary policy normalization,” he remarked.

Despite this, Nagel mentioned that discussing a more significant, 50-basis-point rate cut at the last meeting in December was appropriate, stating, “That’s part of it.”

Nagel rejected a proposal by Christian Lindner, the former German finance minister, to include bitcoin in Bundesbank and ECB reserves.

> “This worries me because it gives the impression that an asset is being given some kind of government seal of approval,” he noted. “A currency reserve must be safe, liquid, and transparent. None of this applies to bitcoin.”

Nagel further asserted that global regulations aimed at enhancing bank safety would still be applied in the United States and Europe, even after being weakened by the U.S. Federal Reserve and potentially overturned under Trump’s administration.

> “I assume that Basel III will be finalized on both sides of the Atlantic,” he declared. “It is crucial that we in Europe speak with one voice.”

Earlier on Friday, the Bank of England announced a one-year delay in implementing these regulations, which entail stricter bank capital requirements, pushing the deadline to January 2027.