Bundesbank President Joachim Nagel is in favor of further sharp increases in key interest rates in the euro zone. “If there is ten percent inflation but only 1.25 percent interest, then the need for action is clear to me. Yes, interest rates must continue to rise – and significantly so,” he told the “Süddeutsche Zeitung” (Saturday).
Nagel, who sits on the Council of the European Central Bank (ECB) and has a say in key interest rate changes, expects high inflation in Germany next year. “For 2023, the ECB staff has forecast 5.5 percent inflation for the euro area. In Germany, I think a six before the decimal point is realistic,” he said.
The head of the Bundesbank rejected assessments that the high inflation could have damaged the reputation of the institution: “I don’t see that confidence in the Bundesbank has been lost, nor in the ECB.” Nagel emphasized that the central bankers were taking away the concerns of the people very seriously. “Our mandate is price stability and that is why we will react with monetary policy so that inflation falls again. We will do it.”
Nagel called on the European central banks not only to think about higher interest rates, but also to reduce their holdings of government bonds. “We must implement our monetary policy robustly. In the long term, the Eurosystem will also have to reduce its bond holdings,” said the Bundesbank President. Regarding Germany’s economic prospects, Nagel said: “We will probably see a temporary recession and thus also higher insolvency figures, but from today’s perspective I do not expect a wave of insolvencies.”