Interest rates: Bundesbank: Battle against high inflation not yet won

Interest rates: Bundesbank: Battle against high inflation not yet won

In April, consumer prices in the euro zone were 7.0 percent higher than in the same month last year. Bundesbank President Nagel thinks it is too high. And refers to “further interest rate steps”.

Bundesbank President Joachim Nagel considers further interest rate hikes in the euro area to be necessary in the fight against stubbornly high inflation. “The battle against high inflation is not yet won,” Nagel told the “Frankfurter Allgemeine Zeitung” in an interview. “The inflation rate has fallen in recent months, but it is still far too high,” said Nagel.

The European Central Bank (ECB) raised interest rates in the euro area for the seventh time in a row on Thursday. However, the increase of 0.25 percentage points was lower than the previous increases. The key interest rate, at which commercial banks can get fresh central bank money, rises to 3.75 percent. If banks park money at the ECB, they will receive 3.25 percent interest in future.

Nagel: “Interest rates should continue to rise”

“I could have imagined an interest rate step of 0.5 percentage points. But we have already announced further interest rate steps,” said Nagel. The message is important: “We’re not finished yet: interest rates should continue to rise.”

In the medium term, the ECB is aiming for price stability in the euro area with two percent inflation. In April, consumer prices in the currency area of ​​the 20 states were 7.0 percent above the level of the same month last year. According to provisional calculations, the annual inflation rate in Germany was 7.2 percent.

“Inflation will fall noticeably. But it may take until the beginning of 2025 before the harmonized inflation rate in Germany has a two before the decimal point again,” predicted Nagel. “We have to reach a sufficiently high level of interest rates so that we can defeat the high inflation in the euro area. And once we have reached this level of interest rates, we will probably have to stay there for a while.”

Source: Stern

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