The ECB raised its deposit rate by 50 basis points to zero last month, and the only real question for September seems to be whether the bank should raise rates by 50 or 75 points.
Although Nagel did not comment on the precise magnitude of the hike, he called for decisive action and stressed the benefits of frontloading rate hikes.
“Monetary policy must react decisively to preserve the credibility of the inflation target,” Nagel said. “Data from a number of countries shows that frontloading or anticipating interest rate hikes reduces the risk of a painful economic downturn.”
A host of politicians have already said a 75 basis point hike should be on the table, while others, including board member Isabel Schnabel and bank chief Franois Villeroy de Galhau French central, called for “energetic” or “significant” action.
“In my view, a larger rise in interest rates reduces the risk of inflation expectations becoming unanchored,” Nagel said.
Eurozone inflation is expected to have reached 9% this month and a further rise above 10% is likely, with soaring energy prices raising the risk of even higher readings.
Mr Nagel also pushed back against arguments that a recession, increasingly likely over the next few months due to high energy prices, should slow down the ECB.
“We should not delay further rate hikes for fear of a possible recession,” he said. “Inflation rates will not return to the central bank’s inflation target on their own.”
But he said longer-term inflation forecasts still seem anchored.