ECB President Lagarde announces an end to negative interest rates and expects a first rate hike in July. Bundesbank President Nagel assumes that more will follow in the second half of the year. Despite the many trouble spots, he is cautiously optimistic about the German economy.
In view of the high level of inflation, Bundesbank President Joachim Nagel has announced that the ECB will raise interest rates several times this year. "In our June meeting we have to give a clear signal as to where the journey is going," Nagel told the "Spiegel". "From my current perspective, we must then make a first rate hike in July and follow with more in the second half of the year."
On Monday, ECB President Christine Lagarde promised an end to negative interest rates by the end of the third quarter. She is aiming for a first rate hike in July. On the financial markets, the statements were interpreted as an indication of an initial interest rate hike of 0.25 percentage points. Since then, some members of the Governing Council have called for a larger rate hike of 0.50 percent in July. However, this does not seem to be able to win a majority in the Governing Council. A number of Western central banks, including the US Federal Reserve, have already initiated a turnaround in interest rates.
The President of the Bundesbank does not expect the inflation rate, which was 7.4 percent in Germany and the euro zone, to fall quickly. "Inflation will not come down overnight, it may take some time. It is important that longer-term inflation expectations are well anchored," he said.
Despite the many trouble spots, Nagel is cautiously optimistic about the German economy. "The German economy is not doing so badly: Before the war, we expected growth of more than four percent for 2022. Now that could be cut in half. With growth of around two percent, it still looks pretty decent." He currently sees the scenario of stagflation, i.e. comparatively high inflation with stagnating economic output, as unlikely: "The situation is still robust," Nagel told the news magazine.