European Central Bank policymaker Joachim Nagel reaffirmed today that the ECB had a way to go in raising interest rates and said it should also shrink its balance sheet in the coming years even if pushback against more credit tightening grows.
Inflation in the euro zone is falling from record highs but remains far above the ECB's 2% target.
This leaves the central bank on course for a ninth consecutive rate hike on July 27 and possibly for one more in September too.
Nagel, the Bundesbank president and a prominent hawk on the ECB's Governing Council, was among a large number of policymakers calling for more tightening even if he acknowledged he would face pushback.
"The way I see it, we still have a way to go," Nagel told a financial event.
"Doubts about the need for more rate hikes will grow, critical voices are becoming louder," he added.
But, he argued, the labour market remains strong, economic growth positive and "monetary policy signals are clearly pointing in the direction of more tightening".
Inflation in the 20 countries that share the euro fell to 5.5% this month from 6.1% in May, chalking up its seventh decline in the last eight months, data showed on Friday.
But "core" inflation excluding energy and food, which ECB policymakers see as a better gauge of the underlying trend, only edged lower, to 6.8% from 6.9%.
Nagel added he advocated "that the balance sheet of the Eurosystem be significantly reduced in the coming years" after years of expansion through massive bond purchase and loans to banks.
These stimulus measures, deployed during the last decade as inflation was too law, flooded banks with cash and dragged interest rates on the money market down to the ECB's deposit rate.
But the ECB has started to mop up that extra cash and its staff has started charting a future where money is scarcer and banks need to borrow it at the central bank's weekly auctions for a higher rate, like they did before the financial crisis.
Nagel said there was no need to rush on this matter, known in central bank jargon as a debate between a "corridor" and a "floor" system.
"There is no reason to make hasty decisions and, for example, to return to an old-style corridor system," he said. "In principle, a floor system can also be considered as a future operative framework for action."
