Euro zone inflation is heading back towards the 2% target but the European Central Bank needs a bit more evidence that price developments are fully under control, Bundesbank President Joachim Nagel said on Wednesday.
The ECB has kept rates at a record high since September but inflation has retreated and policymakers have started debating when they could start unwinding the monetary restriction.
"We still lack more reliable data on wage developments and confirmation that with these data, we will get inflation back to 2% in 2025," Nagel told Reuters on the sidelines of a G7 meeting. "Next week's projections will be an important milestone.”
The ECB will release new quarterly economic projections next Thursday and policymakers have already said that inflation forecasts are likely to be cut.
"We have already achieved a lot with policy," Nagel said. "We can’t make any mistakes in the final stretch of the journey.”
Nagel said it would be "fatal" if the ECB were to cut rates too early only for inflation to rebound. This would hurt the bank's credibility and set off financial market volatility.
Investors now expect the ECB to cut rates by around 90 basis points this year with a first move seen in June, a turnaround from last month when they were betting on up to 150 basis points of easing.
