In view of the high level of inflation, Bundesbank President Joachim Nagel has announced that the ECB will raise interest rates several times this year.
“In our June meeting we have to give a clear signal as to where the journey is going,” said Nagel in an interview with the news magazine “Spiegel”, according to a preliminary report on Friday. “As I see it now, we will have to take a first interest rate step in July and follow with more in the second half of the year.”
On Monday, ECB President Christine Lagarde promised an end to negative interest rates by the end of the third quarter. She is aiming for a first rate hike in July.
On the financial markets, the statements were interpreted as an indication of an initial interest rate hike of 0.25 percentage points. Since then, some members of the Governing Council have called for a larger rate hike of 0.50 percent in July. However, this does not seem to be able to win a majority in the Governing Council. A number of Western central banks, including the US Federal Reserve, have already initiated a turnaround in interest rates.
The President of the Bundesbank does not expect the inflation rate, which was 7.4 percent in Germany and the euro zone, to fall quickly.
“Inflation will not fall overnight, it may take some time. What matters is that longer-term inflation expectations are well anchored,” he said.
Despite the many trouble spots, Nagel is cautiously optimistic about the German economy. “The German economy is not doing so badly: before the war we expected growth of more than four percent for 2022. Now that could be halved. With growth of around two percent, things still look pretty decent.”
