Bundesbank President Joachim Nagel expects the European Central Bank (ECB) to raise interest rates several times this year in the fight against high inflation. At the June meeting of the ECB, a clear signal must be given as to where the journey is going, said Nagel dem mirror. “From my current perspective, we must then make a first rate hike in July and follow with more in the second half of the year.” Nagel also said inflation would “not go down overnight”. “It may take a while.” It is important that longer-term inflation expectations are well anchored.
Nagel has repeatedly called for the ECB to act quickly so that inflation expectations do not get out of hand. Inflation in the euro area was recently at a record high of 7.4 percent. It is now more than three times as high as the ECB’s target. The currency watchdogs are targeting two percent inflation as the optimal value for the economy. Nagel does not see the danger that countries like Italy could get into trouble in view of the high debt levels and rising key interest rates. “It is true that Italy’s debt ratio increased again during the pandemic. But the risk premiums on Italian government bonds are still not exceptionally high.”
The ECB should not jump to the side of individual countries with covert, targeted purchases of government bonds in order to lower interest rates and make it easier for governments to take on new debt. “The public finances in Italy, Germany or any other country must not be decisive for European monetary policy.” From Nagel’s point of view, the German economy is not doing so badly. “Before the war, we expected growth of more than four percent for 2022,” he says. Now that could be cut in half. “With growth of around two percent, things still look pretty decent.” He currently does not consider the scenario of stagflation, a mixture of economic slack and high inflation, to be likely. “The situation remains robust,” he said.