Bundesbank expected to raise interest rates further “substantially”


In the face of soaring inflation, the head of the German central bank on Sunday braced for a new “substantial” rate hike in the euro zone, despite the growing risk of a recession.

Joachim Nagel declared that the ECB’s “step on Thursday to raise its main interest rate by 0.75 percentage points” “is an important signal”.

“If inflation remains the same, other major measures will have to be taken,” he warned.

“We have signs that inflation is spreading across many areas of the economy,” Nagel added.

Inflation in Germany could reach “over 10%” within a year in December, he estimates, a period that, in his view, should constitute the peak of the current inflation surge.

The Bundesbank has so far been talking about 10 percent interest rates in the final months of the year, thus further reducing its forecast.

In his view, inflation should decelerate in 2023, but Nagel estimates inflation should remain “above 6%” next year, a level that is “too high.”

Continued tightening of credit costs in the euro zone is inevitable under the circumstances, the Bundesbank president said, although the policy could have a negative impact on economic growth.

Mr Nagel believes that Germany, Europe’s largest economy, is “likely” to slip into a recession in the third and fourth quarters of this year that will last until early next year.

“There are a number of factors” that predispose to this, he said.

The main task of the ECB is to ensure price stability, and its goal is to keep inflation at 2%.

The Federal Reserve decided on Thursday to raise interest rates on an unprecedented scale amid record and persistent inflation, and its President Christine Lagarde warned that other hikes would follow.

In addition to a technical adjustment in 1999, the monetary agency’s governing board decided to raise its key interest rate by 75 basis points for the first time in the agency’s 20-year existence.

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