Monetary policy – ECB member Nagel: Still far from neutral interest rates

Monetary policy - ECB member Nagel: Still far from neutral interest rates

According to Deutsche Bundesbank head Joachim Nagel, the European Central Bank (ECB) is still a long way from interest rates that will neither stimulate nor slow down the economy. “We are still far from this neutral rate,” Nagel, an ECB council member, said at the German central bank’s open day in Frankfurt on Saturday. It is important for him to keep raising interest rates.

“Something has to happen, something has to rise,” the German central banker stressed. Under the slogan “Backstage Bundesbank”, the central bank will provide information on its tasks and working methods on Saturday and Sunday at its headquarters in Hesse.

Interest rate reversal began in July

In a fight against rising inflation, the European Central Bank (ECB) changed interest rates in July, raising key rates for the first time since 2011. Key interest rates were hiked by 0.50 percent.

With the second rate hike a week ago on Thursday, euro money watchdogs followed suit even more: the 0.75 percentage points increase was the sharpest interest rate hike since the introduction of euro cash in 2002. The prime interest rate is now 1.25 percent. 0.75 percent called deposit rate.

Inflation has permeated almost every aspect of life, Nagel said. “We’re still a long way from interest rates where interest rates match our target inflation rate.”

The ECB aims for an inflation rate of 2 percent as the ideal value for the economy. However, in August, inflation in the euro area more than quadrupled to 9.1 percent. Inflation always has a social dimension, which is why it’s so dangerous, Nagel said. It’s dangerous for competitiveness, and it’s dangerous for growth prospects. However, no quick fix can be offered.

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ECB chief economist not ruling out recession

According to ECB Chief Economist Philip Lane, interest rates in the euro area will rise significantly. At upcoming rate meetings this year and early next, “we believe we are still at the point where interest rates will be raised to what can be described as normal levels,” Lane told Irish broadcaster RTE on Saturday.

The Eurozone economy will stagnate in the winter. A recession can’t be ruled out given high energy prices and natural gas shortages: “If you think our base case is low growth, a tech slowdown — a slide into a mild recession — can’t be ruled out.” (Reuters)

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