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(Bloomberg) — Bundesbank President Joachim Nagel said he supports a more rapid reversal of the European Central Bank’s bond-buying to help tackle inflation, with more large interest-rate increases also a possibility beyond a planned hike this month.Most Read from BloombergNagel, a member of the ECB’s Governing Council, warned that underlying price pressures remain very elevated and that the inflation rate is only likely to retreat slowly — averaging between 6% and 7% in Germany this year.Commenting on the ECB’s balance sheet, Nagel said he’s “in favor of taking a steeper path of reduction starting in July, though he doesn’t envisage outright sales of securities, rather than simply allowing them to mature. He expects markets “to cope well with the reduction in the Eurosystem’s asset holdings.”Discussing borrowing costs, he said Wednesday in a statement: “One thing is clear: the interest-rate step announced for March will not be the last. Further significant interest-rate steps might even be necessary afterwards, too.”When asked later at a news conference in Frankfurt, Nagel declined to speculate on how far officials will push rates and when they’ll stop raising them.Investors have been cranking up bets on a higher peak in the ECB’s moentary-tightening cycle, pricing a so-called terminal rate of 4% for the first time on Tuesday after surprise upswings in French and Spanish inflation. The deposit rate currently stands at 2.5% but will almost certainly be lifted to 3% on March 16.Speaking earlier on Wednesday, Nagel’s French counterpart, Francois Villeroy de Galhau, also highlighted the need for ECB action. He said that underlying inflation is still accelerating and that “no one can any longer deny that monetary policy can react, and must react.”Story continuesEurope’s inflation picture will become clearer later Wednesday as Germany — the continent’s biggest economy — reports figures. A reading from the 20-nation euro zone will follow a day later, with analysts estimating February price gains slowed to 8.3% from 8.6%.Read more: GERMANY REACT: German State Inflation Signals Upside SurpriseThere’ll be particular attention on core inflation, which strips out volatile energy and food costs and, unlike the headline measure, hasn’t moderated. It’s seen remaining at a record 5.3%.Zero ProfitSeparately, the Bundesbank recorded zero profit for last year, saying it had drawn down €1 billion ($1.1 billion) in risk provisions after the steep rate hikes to date in the euro zone collided with years of bond-buying to perk up the region’s economy.Germany’s central bank said losses will worsen in the coming years and may not be fully covered by provisions already set aside, which now stand at €19.2 billion. It said the losses will be carried forward and offset by future profits, suggesting a capital injection from the government won’t be needed.The Bank of France will probably post a profit for 2022 and its reserve should cover declining revenues in coming years without requiring a recapitalization, Villeroy told lawmakers in Paris.Quantitative easing enacted in the wake of the 2008 global financial crisis is now triggering hefty losses across Europe after commercial lenders deposited some of the money created with central banks — forcing them into ever-increasing interest payouts as rates are lifted to stem inflation.The ECB last week also reported zero profit for 2022 after deploying buffers it set aside in earlier years. Tapping those provisions became necessary after QE-related interest payments to the euro area’s national central banks jumped to about €2 billion.–With assistance from Alexandre Rajbhandari.(Updates with more Nagel comments starting in third paragraph.)Most Read from Bloomberg Businessweek©2023 Bloomberg L.P.

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