FRANKFURT, Feb 9 (Reuters) – The European Central Bank (ECB) could raise interest rates as early as this year if the current high level of inflation were to persist, said Joachim Nagel, President of the Bundesbank and member of the Governing Council of the ECB, to the weekly Die Zeit.
ECB President Christine Lagarde did not rule out the possibility of a rate hike in 2022 last Thursday after the institution’s meeting when inflation risks are on the rise.
But on Monday, in what was seen as an effort to temper market expectations of accelerated monetary tightening, she indicated that there was currently no need for significant monetary tightening as the level of inflation is brought back on its own.
True to the Bundesbank’s traditionally conservative stance, Joachim Nagel said late normalization of monetary policy was riskier than early action.
“If the (inflationary) picture does not change by March, I will argue for a normalization of monetary policy,” said Joachim Nagel, who took over as chairman of the German central bank in January, succeeding Jens. Weidman.
“The first step is to end net bond purchases in the year 2022. Then interest rates could rise this year,” he continued.
“If we act later, we should raise interest rates more sharply and at a faster pace. Financial markets would then react with greater volatility.”
Klaas Knot, the governor of the Dutch central bank, has also come out in favor of a rate hike this year, starting in the fourth quarter.
Joachim Nagel also said inflation in Germany is expected to exceed 4% this year, more than double the ECB’s target and also well above the Bundesbank’s estimate of 3.6%.
“There are signs that the rise in energy prices may be more sustainable, that it is affecting the prices of other goods and services, and that rising demand is also behind it,” said the president of the German institution. (Report Balazs Koranyi, French version Laetitia Volga, edited by Blandine Hénault)