The European Central Bank (ECB) will continue to raise interest rates to curb record inflation in the euro zone, the presidents of the central banks of Germany and Spain said in a joint interview on Wednesday.
“I am convinced that this will not be the end of rate hikes,” said Joachim Nagel, chairman of the influential Federal Bank of Germany, in an interview with the German daily Frankfurter Allgemeine Zeitung.
There is still a “long way” to go because inflation is “persistent” and to reduce it, monetary policy “must be even stricter”, added this “hawk” from the ECB’s Governing Council.
His Spanish counterpart, Pablo Hernandez de Cos, wants to “bring interest rates to a level that makes it possible for inflation to return to our medium-term target of 2%”, in the same interview.
ECB President Christine Lagarde made similar comments in an interview published Monday by the Lithuanian daily Delphi.
Last Thursday, the 25-member ECB Governing Council raised its key rates by 0.75 points for the second time in a row.
The Frankfurt institution is under pressure to contain record inflation, fueled by soaring food prices and especially energy, in the wake of the Russian invasion of Ukraine.
Inflation in the eurozone came close to 10% in September, nearly five times the ECB’s 2% target, while GDP (gross domestic product) growth slowed down significantly to 0.2% from July to September.
The armed conflict in Ukraine triggered by Russia means that “uncertainty is enormous” concerning the economic outlook, recognizes Mr. de Cos.
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As the specter of a recession draws closer, “nobody knows how far we’re going to raise interest rates,” he adds.
It will be necessary to “act decisively, as we have done at the last three meetings” of the ECB, pleaded Mr. Nagel.
The other project to come from the monetary institute, which will consist of reducing the size of its swollen balance sheet during the years of crisis, will have to start “at the beginning of next year”, he insisted.
This will consist of reducing the imposing bond portfolio “in a way that preserves the market, for example by dropping the securities in the portfolio”.