Despite inflation tending to fall in the euro zone, there is still “some way to go” in the cycle of raising interest rates, warned Monday the President of the Federal Bank of Germany.
In less than a year, the European Central Bank has raised its key rates by four percentage points, responding in an unprecedented way to the persistently high inflation in the euro zone.
The institution will most likely decide in July on a new rate hike to fight against high inflation, has already indicated its president Christine Lagarde.
The decisions that will be taken after July will depend on the evolution of the data but in my opinion, we still have a long way to go, declared Monday the president of the Federal Bank of Germany Joachim Nagel during a Frankfurt banking congress.
No return of price stability in the near future
It is crucial that we bring inflation back to 2% in a sustainable way and this requires a sufficiently restrictive level of interest rates, he insisted.
This hawk in favor of a strict monetary policy thus believes that the signals at the moment are clearly pointing in the direction of further tightening.
Inflation is certainly down, 5.5% in June according to Eurostat, far from the level of 10.6% in October, mainly due to the drop in energy prices. However, these values remain much higher than the inflation target of 2% targeted by the ECB. Inflation remains too high and a return to price stability should not be expected in the near future, according to Nagel.
Inflation is proving more tenacious than many thought and that is why monetary policy must prove to be tighter and more consistent than many expected, he insisted.
Last week, the President of the ECB also adopted a determined tone, warning that the rise in rates would continue. Our work is not finished, had declared Mrs. Lagarde.