Bundesbank President Joachim Nagel warns against ending the ECB's rate hike course too quickly.

"There is indeed a risk that monetary tightening will be halted too soon," Nagel said in a speech at Harvard University in Cambridge, near Boston.

A premature stop could lead to an even longer period of high inflation, which could then necessitate much tighter monetary policy later on.

As a result, an even worse recession could result, warned Nagel.

The European Central Bank (ECB) initiated the turnaround in interest rates in July and has so far raised its three key interest rates in two steps by a total of 1.25 percentage points.

The key interest rate is currently 1.25 percent.

And the deposit rate currently relevant for the financial markets is now 0.75 percent.

Course still boosts the economy

The financial market is currently expecting that the deposit rate will be raised to around two percent by the end of the year and then raised further to around three percent in spring 2023.

For the upcoming interest rate meeting on October 27, monetary watchdogs had already campaigned for another XXL interest rate step of 0.75 percentage points, as in September.

"At this point in time, the course of monetary policy in the euro area is still pro-cyclical," Nagel said.

The economy and thus inflation will continue to be pushed.

"Obviously we need to withdraw this stimulus quickly."

If that is not enough to bring inflation back to the central bank's target of two percent, monetary policy must move into the restrictive area.

On the financial markets, this restrictive interest rate range, which slows the economy, is currently set at interest rates above two percent, measured against the deposit rate.

In any case, monetary policy cannot assume that inflation will return to normal levels on its own, Nagel said.

His message, on the other hand, was: "On the contrary, we must act decisively to prevent inflation from taking hold in the euro area."

Most recently, the inflation rate marked a new record high of 10 percent in September - that is the highest rate since the euro came into existence.

It is important that the ECB proceeds resolutely on its normalization course, said Nagel.

"We must not relax until price stability is restored." If central bankers act half-heartedly in the fight against inflation, they risk losing credibility and damaging their reputation.