Joachim Nagel, President of the German Central Bank (Bundesbank), said that the European Central Bank may need to increase interest rates after March to combat inflation. Nagel also emphasized that the ECB’s efforts to shrink its oversized bond portfolio should be accelerated from July.
Pointing out that the ECB has increased the interest rate by 300 basis points since July 2022 and responding to those who argue that the ECB should act more measuredly after March, Nagel said, “The recent decline in energy prices may help bring inflation down in the short term, but Energy prices will have no effect in the medium term and there is a risk that price growth will rise above the ECB’s 2 percent target,” he said.
“The rate hike in March will not be the last,” said Nagel, adding, “Serious interest rate steps may be necessary later on.”
Nagel stated that he would not speculate on when the interest rate will peak, but said, “Once rates peak, interest rates should be kept high until the ECB is sure that inflation is returning to 2 percent.”
