The European Central Bank intends to raise its key interest rates further and noticeably in the coming year. Bundesbank President Nagel also considers these steps necessary to continue fighting inflation. However, the effects are only noticeable with a delay.
Bundesbank President Joachim Nagel has defended the policy of the European Central Bank despite an inflation rate of 10 percent in Germany recently. “February 24, this terrible war of aggression by Russia against Ukraine with skyrocketing energy prices, that drove up inflation,” Nagel said in an interview with RTL/ntv, adding: “I do think that the central banks in the Eurosystem, ECB, we’ve acted heavily over the year with four rate hikes now and rate hikes will continue.”
“It will be some time before inflation gets back to where it belongs, at two percent.” That is the aim of the ECB. “That means we’re going to have to go through a few tough months,” said the 56-year-old. Initially, one will see lower inflation rates in December as a result of the gas price brake. In 2023, inflation will be seven percent. “From 2024 onwards, inflation rates will then drop significantly,” said Nagel. Interest rate hikes would have a lag of 18 months to two years. “That’s why I have to ask for patience at this point.”
According to Vice-President Luis de Guindos, the ECB intends to keep interest rates higher in the fight against undesirably high inflation. “There will be more rate hikes,” de Guindos said at an event in Madrid. When the price increase ends, he cannot say: “I’m absolutely honest, I don’t know.” The European Central Bank (ECB) is determined to push inflation back to two percent. It is striving for this target as optimal for the economy in the euro area. In November, inflation was five times higher at 10.1 percent.
The euro central bank raised the key interest rate by 0.5 points to 2.50 percent on Thursday. After the interest rate decision, ECB President Christine Lagarde announced further increases in unusually clear words. She indicated further increases of half a percentage point for the coming meetings. The ECB does not plan to change its medium-term inflation target, de Guindos said. “I can say that we will not revise it, especially when inflation is at 10 percent.” That would send a message that would lead to great uncertainty and central banks depend on being credible. That is the last thing the central bank should do.
