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ECB's Nagel calls for letting long-term rates rise too

A view of signage outside the European Central Bank (ECB) building in Frankfurt

FRANKFURT (Reuters) - The European Central Bank should let long-term borrowing costs rise too, as it increases short-term interest rates to fight runaway prices in the euro zone, ECB policymaker Joachim Nagel said on Thursday.

The ECB has been raising its policy rates at record speed but it is still buying bonds to replenish its 5-trillion-euro ($5.07 trillion) stimulus portfolio, which has a dampening impact on long-term bond yields.

Nagel's comments likely represent a call on the ECB to start unwinding those bond holdings - legacy of a decade spent trying to boost inflation when it was too low - even before its last rate hike, which the market expects in the summer.

"I find it inconsistent to move short-end rates in one direction and longer-end rates in the other direction," Nagel said. "When you have two policy normalisation tools at hand, it doesn't make sense to use just one of them."

ECB vice-president Luis de Guindos said earlier this week that this so-called quantitative tightening may start while rates are still being increased.

The ECB said it would begin discussing how it reinvests proceeds from bonds that mature at its Dec. 15 meeting.

($1 = 0.9865 euros)

(Reporting By Francesco Canepa; Editing by Gareth Jones)