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In view of the high inflation, there are increasing calls in the European Central Bank (ECB) for an imminent turnaround in interest rates. “As things stand today, I assume that we will be able to raise interest rates for the first time in July,” said German ECB Director Isabel Schnabel to “Bild” (Friday edition). According to Bundesbank boss Joachim Nagel, there is a need to hurry: “The time window that is now opening for the first monetary policy measures is slowly closing.”
His French colleague Francois Villeroy de Galhau is also alarmed at the record inflation rate of 7.5 percent recently and sees the monetary authorities around ECB boss Christine Lagarde under pressure.
Villeroy called moving interest rates towards zero the “most obvious next step”. The coming ECB meetings could be considered for this. These are due in June and July, with another following in September. The head of the Finnish central bank, Olli Rehn, recently brought July into play and proposed a rate hike of a quarter of a percentage point for the deposit rate. Currently, this so-called penalty rate for banks that park money at the ECB is minus 0.5 percent. ECB chief economist Philip Lane has signaled a string of hikes but downplayed the importance of the rate hike itself. The timing of the first hike is not as important as the monetary policy normalization process as a whole, argues the Irishman.
According to Bundesbank boss Nagel, however, the end of the era of negative interest rates that the ECB introduced in 2014 is in sight: “I can only say at this point that I no longer see the times when we are confronted with negative interest rates the central bank side. That will soon change now.” All in all, this is “good news for savers”.
Ifo boss Clemens Fuest told the “Augsburger Allgemeine” newspaper, Ifo boss Clemens Fuest told the “Augsburger Allgemeine” that the recent sharp rise in interest rates in the USA is increasing the pressure on the ECB: “The rise in interest rates in the USA is leading to an appreciation of the US dollar against the euro, which is increasing inflationary pressure in Europe . As such, there is some pressure for the ECB to follow.” The US Federal Reserve reacted to the high inflation on Wednesday with the largest jump in interest rates in 22 years and wants to follow suit with further increases.
Villeroy also advises keeping a close eye on the exchange rate: “We don’t have an exchange rate target, but the level of the euro plays an important role in imported inflation,” said the currency watchdog: “A weak euro would run counter to our price stability goal .” Investors interpreted this as a signal of an approaching turnaround in interest rates and bought euros. The common currency appreciated to 1.0589 from $1.0499 by midday.