In mid-March, the European Central Bank intends to raise interest rates for the sixth time in a row. Deutsche Bank boss Sewing does not consider the step to be sufficient. Further hikes are needed to keep inflation under control.
Deutsche Bank boss Christian Sewing considers further interest rate hikes to be “absolutely” necessary in the fight against high inflation. “The inflationary risks are still great. Energy costs can easily rise again, and the opening of China can also give prices a temporary boost,” Sewing told the “Welt am Sonntag”.
At the beginning of February, the European Central Bank (ECB) raised interest rates in the euro area for the fifth time in a row and announced a further increase of 0.5 percentage 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. Higher interest rates make loans more expensive. This can slow down demand and thus counteract high inflation rates.
At the same time, higher interest rates on loans can lead to investments being postponed and thus economic growth being weaker. Rising interest rates are also a burden for highly indebted euro countries such as Italy. “The consequences of persistently high inflation are far more serious than higher financing costs for some countries,” Sewing said. “Of course we have to keep an eye on that, but a high level of debt must not prevent the ECB from acting consistently.”
The ECB is aiming for price stability in the euro area in the medium term with an inflation rate of two percent. This target has been a long way off for months. Although inflation slowed again in January, consumer prices in the currency area, which now has 20 countries, were 8.5 percent above the level of the same month last year.
Higher inflation rates reduce the purchasing power of consumers because they can then afford less for one euro. Sharp increases in energy prices, which are a key driver of inflation, are also a burden for companies. If inflation stays high, private consumption will “slump sooner or later,” warned Sewing, who is also president of the Association of German Banks (BdB). “I currently see this as the greatest danger for the German economy. But I am optimistic that we can avoid this scenario.”
