The president of the central bank of Germany (Bundesbank), Joachim Nagel, today paved the way for new “significant” increases in interest rates in the euro zone, given the increase in inflation and the risk of recession.
Joachim Nagel said today, quoted by Agence France-Presse (AFP), that “the step taken on Thursday” by the European Central Bank (ECB), of raising its reference interest rate by 0.75 points, “constituted a significant signal.
“If the inflationary situation remains as it is, other significant steps will have to be taken,” he warned, speaking of the existence of “indications that show that inflation is spreading to many areas” of the economy.
The president of the Bundesbank estimated that the inflation rate in Germany could reach a level “above 10%” in a year in December, a period that, in his opinion, should constitute the current inflationary peak.
The Frankfurt-based bank has only referred to an inflation forecast of 10% in the last months of the year, thus worsening its expectation.
According to Joachim Nagel, quoted by AFP, inflation is expected to slow down in 2023, but remain “above 6%” next year, a “very high” level.
In these conditions, the continuation of the tightening of the cost of credit in the euro zone is inevitable, said the German official, despite the negative impact that this policy may have on economic growth.
The leader of the Bundesbank considered it “possible” that Germany, Europe’s largest economy, enters a recession in the third and fourth quarters of this year, and remains so at the beginning of next.
“There are a number of elements” that point to this scenario, Joachim Nagel said.
The ECB, whose main mission is to guarantee price stability in the euro zone, has an inflation target of 2%.
The institution chaired by Christine Lagarde decided on Thursday to make the biggest increase in interest rates in history, warning the French official that other increases would follow.
The Governing Board of the monetary institution decided to increase its policy rates by 75 base points, the first in two decades of existence, with the exception of a technical adjustment in 1999.
Source: Observadora
