/Monetary policy: Bundesbank President Nagel expects several interest rate hikes in 2022
Monetary policy: Bundesbank President Nagel expects several interest rate hikes in 2022

Monetary policy: Bundesbank President Nagel expects several interest rate hikes in 2022

Monetary policy Bundesbank President Nagel expects several interest rate hikes in 2022

Joachim Nagel demands from the June meeting a clear signal from the ECB. Despite many crises, he is cautiously optimistic about the German economy.

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. “From my current point of view, we will then 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 a first interest rate increase of 0.25 percentage points.

Since then, some ECB Governing Council members have called for a larger rate hike of 0.50 percent in July. However, this does not appear 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 interest rate hikes.

The President of the Bundesbank is not assuming that the inflation rate, which was 7.4 percent in Germany and in the euro zone, will 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.

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Nagel is cautiously optimistic about the German economy despite the many trouble spots. “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 cut in half. With a growth of about two percent, things still look pretty decent.”

He sees the scenario of stagflation, i.e. comparatively high inflation with stagnating economic output at the same time, as unlikely at the moment: “The situation is still robust,” Nagel told Der Spiegel.

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