Don’t say goodbye to higher interest rates too soon
Dhe European Central Bank (ECB) should from the point of view of the Bundesbank President Joachim Nagel in the fight against inflation, do not move away from higher interest rates too early. It is necessary to raise the key rates to sufficiently slowing levels so that the inflation rate returns to the target of two percent in time, Nagel said in a speech in Edinburgh on Friday, according to the manuscript. “We should also keep policy rates sufficiently high for as long as necessary to ensure lasting price stability,” he said. Currently, inflation in the euro area is still far from the ECB’s target of two percent. In February, it was more than four times as high at 8.5 percent.
“In my view, if inflation plays out as forecast, that shouldn’t mean the end of the tightening sequence,” Nagel noted. “So far the picture is clear: We have not yet won the fight against inflation.” The economists of the ECB According to their latest forecasts for the current year, they still expect consumer prices in the euro area to rise by 5.3 percent. The ECB has raised key rates six times in a row since July 2022 – most recently by 0.50 percentage points in mid-March. The deposit rate, which is decisive on the financial markets and which banks receive from the central bank for parking excess funds, is now 3.00 percent.
Nagel also spoke out in favor of making the securities reduction at the ECB even more extensive after June. “For the third quarter, I would welcome an acceleration of the process,” he said. The normalization of the balance sheet is an important part of the monetary policy change.