(Adds detail on rate increases, restrictive monetary policy,
end of tightening)
Feb 24 (Reuters) - The European Central Bank may still
need to raise interest rates significantly beyond March as
inflation, particularly underlying price growth, remains too
high, Bundesbank President Joachim Nagel said on Friday.
Although headline inflation is well below its peak,
underlying price growth, a key indicator of the durability of
inflation, rose to a record high 5.3% last month, raising the
risk that price growth will get stuck above the ECB's 2% target.
"It appears that core inflation will remain at very high
levels beyond March and only decline slowly," Nagel told a news
conference in the Indian city of Bengaluru on the sidelines of a
G20 finance meeting.
"That's why I'm not ruling out that further interest rate
hikes, significant interest rate hikes, beyond March, may be
necessary."
The ECB has already promised to raise rates by 50 basis
points to 3% in March and markets now price another 75 basis
points of moves before the end of the summer.
But dovish policymakers, particularly from the 20-nation
euro zone's south, are pushing back, calling for more measured
steps, arguing that rates are now restricting economic growth.
Disputing that point, Nagel said he did not think rate were
restrictive yet, despite the steepest monetary tightening cycle
in the ECB's history.
A neutral rate, which neither stimulates nor slows growth,
can only be estimated and while most policymakers in the past
put it at between 1% and 2%, many are now saying that the
economy's behaviour suggests it is actually higher.
Nagel said that stopping monetary tightening too early would
be a "cardinal error", a point echoed by other conservative
policymakers, who say that the risk of doing too little to
combat inflation outweighed the cost of doing too much.
(Reporting by Francesco Canepa; writing by Balazs Koranyi;
Editing by Alex Richardson, Robert Birsel)
Reuters Messaging:
balazs.koranyi.thomsonreuters.com@reuters.net))
