Nagel stresses the need for further ECB interest rate hikes

Bundesbank President Joachim Nagel claimed that the European Central Bank must keep raising its interest rates. He earlier said that Germany is on the brink of recession if the energy crisis reaches its peak. 

According to what Nagel told Rheinische Post, the high inflation rate that we are seeing now means that further interest-rate increases would come in the period ahead. At the same time, he declined to give specific figures on what he expects from the next ECB interest rate decision in September. “The past few months have shown that we have to decide on monetary policy from meeting to meeting,” he said. 

Last month, the ECB pushed its benchmark rate up by 50 basis points and announced that  it plans to raise the cost of borrowing again. Later, it emerged that inflation soared about 9 percent, exceeding the bank's target more than four times. 

As reported by Nagel, it's of a high importance to reanchor medium-term inflation expectations towards two percent. This week he will arrive in Jackson Hole, Wyoming, for the Federal Reserve’s Economic Policy Symposium. "I am convinced that the Governing Council of the ECB will take the necessary monetary-policy measures," the Bundesbank president said. 

The economic prospects for the eurozone haven’t made the situation any easier: a recession is likely to be on the way. This is the reason why some analysts have begun to adjust their forecasts for an ECB rate hike. 

It is predicted that Germany’s economy will face a deep crisis: the fact that the country relies exclusively on Russian gas makes it more vulnerable. In addition to this, a recent drought that hit Germany’s Rhine River, a key route for transporting fuel and other industrial goods, severely hampered river traffic. 

Nagel warns that the country may slip into recession next winter if the energy crisis escalates. The German economy still remained strong despite the difficult economic conditions in the first half of the year. Nevertheless, if further problems emerge concerning transportation of goods, for example due to prolonged low water levels, the economic prospects for the second half would be threatened.

As reported by him, Germany's inflation rate could hit 10 percent in fall. His predictions are based on the termination of the special measures that cooled price gains, such as the transport and fuel discount. Nagel predicts that the price growth will likely exceed 6 percent in 2023. 

In an interview with the Rheinische Post, Bundesbank President Joachim Nagel also stated that:

1. The housing market should cool down soon.
2. Some mortgage holders may face higher interest rates (although it doesn’t mean that it will lead to an avalanche-like development).
3. Banks are likely to get out of negative rates by the end of 2022.