Bundesbank boss warns ECB colleagues to change course quickly: “We have to act in good time when it comes to interest rates”

Created: 2022-02-09 18:14

In view of the high inflation, Bundesbank President Joachim Nagel is bringing a turnaround in interest rates in the euro area before the end of this year.

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In the fight against rising inflation, the new head of the Bundesbank, Joachim Nagel, is pushing for the ECB to change course quickly.

Frankfurt/Berlin - In view of the high inflation, Bundesbank President Joachim Nagel is bringing a turnaround in interest rates in the euro area before the end of this year.

In the first interview since taking office in January, he called for the European Central Bank (ECB) to take swift countermeasures*.

Interest rate policy: Bundesbank boss warns against acting too late

"If the picture does not change by March, I will advocate normalizing monetary policy," Nagel told the weekly

.

First of all, the bond purchases would have to stop.

“The first step is to end net bond purchases during 2022.

Then interest rates could still rise this year.” Nagel warned against waiting too long to normalize monetary policy: “In my opinion, the economic costs are significantly higher if we act too late than if we act early.”

When asked about this, ECB Director Isabel Schnabel said in a question and answer session on Twitter on Wednesday: "We must minimize both dangers - acting too late and acting too early".

However, exaggerated inflation expectations could require a turnaround in interest rates.

Schnabel assured that the ECB takes concerns about rising prices very seriously.

EU citizens can count on the central bank pulling out all the stops to achieve the inflation target in the medium term.

Should the ECB judge that inflation will remain above target in the medium term, the instruments would be adjusted as needed.

ECB: turnaround in interest rates towards the end of the year?

Last week, after the most recent interest rate meeting, ECB President Christine Lagarde did not repeat her earlier assessment that a turnaround in interest rates in 2022 was very unlikely.

The monetary authorities left the key monetary policy rate at a record low of 0.0 percent.

Banks will also continue to have to pay penalty interest if they park excess funds at the ECB.

The so-called deposit rate remains at minus 0.5 percent.

According to insiders, some monetary authorities at the meeting already wanted to take steps to curb inflation.

After Lagarde's comments, speculation on interest rates had run rampant on the stock exchanges.

The head of the ECB then tried on Monday to dampen inflation concerns somewhat.

There are no signs that inflation will remain persistent and well above the ECB's 2% target over the medium term, which would require significant monetary tightening*.

Since 2011, the ECB has not increased borrowing costs by increasing interest rates.

The head of the Dutch central bank, Klaas Knot, also recently brought up a turnaround in interest rates this year.

He expects an increase "around the fourth quarter", with an increase of a quarter point being indicated. 

*