Bundesbank President: Raise interest rates further

Bundesbank President: Raise interest rates further
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Bundesbank President Joachim Nagel expects further interest rate hikes. © Hannes P. Albert/dpa

The job isn’t done yet. To prevent inflation from becoming entrenched, Bundesbank President Joachim Nagel is calling for further interest rate hikes.

Frankfurt/Main – Bundesbank President Joachim Nagel expects further interest rate increases in the euro area beyond March. “In my opinion, we must also raise interest rates in order to achieve the necessary braking effect with which we can bring inflation back to two percent quickly and sustainably,” said Nagel, who has a say in monetary policy in the Council of the European Central Bank (ECB). “Börsen-Zeitung” in an interview published in advance on Tuesday. “If we ease too soon, there is a serious risk that inflation will become entrenched.”

On Thursday, the ECB raised interest rates in the euro area for the fifth time in a row and announced a further increase of another 0.5 points for the March 16 meeting. The key interest rate in the euro area is now 3.0 percent. The deposit rate that commercial banks receive when they park money at the ECB is 2.5 percent. “Because inflation is still far too high, real short-term interest rates are still clearly negative. Despite all the uncertainty, it doesn’t look like a restrictive area to me,” said Nagel. “From my current perspective, further significant interest rate hikes are needed.”

Higher interest rates can dampen inflation because credit becomes more expensive and this slows demand. Although inflation slowed again in January, consumer prices in the currency area were still 8.5 percent higher than in the same month last year. Energy and food in particular are fueling inflation.

“No one should underestimate how serious the Governing Council is about bringing inflation back to two percent quickly,” stressed Nagel. “We’re still a long way from achieving price stability, our job isn’t done yet. Interest rate cuts are not on my agenda at all for the foreseeable future.” dpa

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