The head of the German Bundesbank pleaded on Friday for a rapid increase in interest rates from the European Central Bank (ECB), in order to curb soaring prices, and considered that “negative interest rates are a thing of the past”.
“When you are in an inflation rate environment around 7% (…), the conclusion is that interest rates must increase”, declared Joachim Nagel at the end of a meeting of the G7 in Germany.
“It is certain that negative interest rates are a thing of the past,” commented the boss of the German central bank.
During their meeting, the finance ministers and central bankers of the seven major powers (United States, Japan, Canada, France, Italy, United Kingdom, Germany) made the fight against inflation one of their priority, as the war against Ukraine has aggravated food and energy price increases.
“We see inflation as a huge danger,” German Finance Minister Christian Lindner, whose country chairs the G7, said at the final press conference.
This situation led most of the major central banks, including the US Federal Reserve, to raise their key rates, which had been maintained for years at historic lows in a context, now over, of stagnating prices.
The ECB, after being more wait-and-see, is now laying the groundwork for a rate hike that is expected to take place in July, which would mark the beginning of the end of ‘easy’ money in the Eurozone.
A first since 2011
After the end of the ECB’s asset purchase program, the first interest rate hike could come ‘perhaps in July’, Nagel confirmed on Friday.
“Other increases” could follow “soon” after, added the boss of the Bundesbank. The latter is one of the ‘hawks’ advocating a stricter monetary policy within the Governing Council, the decision-making body of the ECB.
The ECB has not had a rate hike since 2011.
‘The dynamics of inflation have changed profoundly in a very short time, which has led to a change in monetary policy in most G7 countries’, further observed Mr. Nagel.
“Monetary policy must remain vigilant and take additional measures if necessary to ensure price stability in the medium term”, he pleaded while some economists warn against the risk of weakening activity by raising too abruptly interest rates.
/ATS