Bundesbank boss Nagel warns
Interest rate cuts? “Some people have already speculated”
December 20, 2023, 12:24 p.m
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The time of interest rate hikes by the ECB is over, inflation in the euro area has calmed down. Will interest rate cuts soon follow? Bets are on, but Bundesbank boss Nagel urges vigilance. It could also turn out differently.
Bundesbank President Joachim Nagel sees the European Central Bank (ECB) on the right track in combating inflation after ten interest rate increases. “Inflation is falling. Monetary policy is working,” he told t-online. “And we are not experiencing a recession.” This is good news for everyone and for the economy, he added. However, Nagel pointed out that inflation in Germany would temporarily rise again due to special effects. Commerzbank even expects a rate of four percent for January.
Nagel also once again countered speculation about rapid interest rate cuts. The ECB has raised the key rates by a total of 4.5 percentage points in ten steps in the fight against the price surge since summer 2022. The deposit rate, which is relevant on the financial market, is currently 4 percent – the highest level since the beginning of the monetary union in 1999. However, the ECB kept its feet still at its two most recent interest rate meetings in October and last week.
The inflation rate in the euro area was most recently only 2.4 percent in November. The ECB is aiming for 2 percent as the optimal value for the 20-country community. It expects an average rate of 2.7 percent for the full year 2024.
Nagel urged vigilance. “There is a high probability that the interest rate peak has been reached,” he said. “I would say to everyone who is speculating on an imminent interest rate cut: be careful, some people have already speculated.” On Monday, Slovenia’s central bank chief Bostjan Vasle, Greece’s central bank chief Yannis Stournaras and the central bank governor of Slovakia, Peter Kazimir, also countered such speculation.
Most recently, the financial market had bet on a first interest rate cut in March. Nagel pointed out that inflation in Germany is expected to temporarily rise again at the turn of the year. A year ago, the government took over the monthly advance payments for gas and district heating on a one-off basis. “This is now no longer applicable, and that is why the prices are noticeably higher compared to back then,” said Nagel. Therefore, for him: “Overall, we have to remain vigilant: fighting inflation is not a sure-fire success.”