THE European Central Bank interest rates are likely to rise in 2022, as inflation is projected to remain high for longer than initially estimated, Bundesbank President Joachim Nagel said in an interview with Die Zeit.
“If the picture of inflation does not change by March, I would support the normalization of monetary policy,” said the German central bank chairman, who took office in January.
“The first step is to end net bond purchases during 2022. Then interest rates can rise within the year.”
Adhering to the historically conservative line of the Bundesbank, Nagel states that if monetary policy smoothing is delayed too much, the costs will be particularly high.
“The financial cost will be significantly higher if we delay taking action than if we act in time,” he warns.
“If we delay, we will have to raise interest rates more and faster. “Then the markets will react with more volatility.”
Joachim Nagel is thus meeting with the head of the central bank of the Netherlands, Klaas Knot, and is openly discussing the possibility of raising interest rates in 2022, the first increase in borrowing costs by the ECB since 2011.
The chairman of the Bundesbank also states that inflation in Germany is likely to significantly exceed 4% this year, which means more than doubling the European Central Bank’s 2% target and well above the Bundesbank’s own forecast of 3, 6%.
“There are indications that rising energy prices may prove more persistent, that this is affecting the prices of other goods and services, and that rising demand is also behind it,” he told Die Zeit.
The ECB warned last week that inflation risks are now on the rise, which means that price increases will exceed the target even in 2023, for the third consecutive year.
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