By Hans Bentzien
FRANKFURT (Dow Jones) – According to ECB Council member Joachim Nagel, the European Central Bank (ECB) must continue to raise interest rates. In an interview with the Rheinische Post, however, the President of the Bundesbank did not want to commit himself to the size of the next rate hike, which is expected for September. According to Nagel, inflation in Germany could reach double-digit rates in the fall, with a recession possible next winter.
“With the high inflation rates, further interest rate hikes must follow,” said Nagel, adding: “But I don’t want to put any numbers in the shop window.” The past few months have shown that monetary policy must decide from session to session.
The Governing Council of the ECB had unexpectedly raised its interest rates by 50 basis points in July and at the same time canceled interest rate guidance, according to which an interest rate hike of more than 25 basis points in September could be justified. In an interview this week, ECB Director Isabel Schnabel indicated her preference for a large rate hike in September.
Nagel said it will be crucial to keep medium-term inflation expectations stable at 2 percent. “I am convinced that the Governing Council will take the necessary monetary policy measures.” Regarding a reduction in the ECB’s balance sheet, Nagel said: “Of course, the reduction in stocks will be an issue with a view to further normalization. Now we’re going to raise our key interest rates first.”
According to Nagel, the Bundesbank is now assuming that inflation in Germany will be higher than forecast in June and that growth will be lower. “Overall, an inflation rate of 10 percent is even possible in the autumn months,” he said. In view of the current developments on the gas market, higher inflation than previously expected (4.5 percent) is also possible for 2023.
Regarding economic growth, the President of the Bundesbank said: “In June we assumed that economic growth in 2022 would be almost 2 percent. From today’s perspective, it should be a little less.” If the energy crisis worsens, a recession looks likely next winter.
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(END) Dow Jones Newswires
August 20, 2022 04:34 ET (08:34 GMT)