Bundesbank’s Nagel: “From a monetary policy perspective, there is still a way to go”

Bundesbank President Joachim Nagel believes that the European Central Bank should continue to raise interest rates given high levels of inflation. “From a monetary policy perspective, there is still a way to go here,” he said at a joint press conference with Germany’s Finance Minister Christian Lindner at the spring meetings of the International Monetary Fund (IMF) and the World Bank in Washington DC. 

“It is very clear that core inflation, i.e. inflation excluding food and energy prices, remains very high,” Mr Nagel explained. He would not, however, he said, commit to any order of magnitude for rate hikes. “The debate about the magnitude of rate hikes is not helpful at this point because the information available is still a little sparse,” Nagel said. “We will take a decision at the May meeting based on the data.” 

The next meeting of the Governing Council of the ECB at which a decision on interest rates will be made is scheduled for 4 May. Inflation in the euro area stood at 6.9% in March, compared with 7.4% in Germany. The Governing Council of the ECB, which the Bundesbank’s president is also a member of, considers that price stability is best maintained, however, by aiming for a 2% inflation rate over the medium term. 

In Mr Nagel’s opinion, the outlook for the German economy is positive. “We expect Germany to see slight growth for full year 2023,” he said.

The role of the Bundesbank in the IMF

The IMF and the World Bank convene regularly for their spring meetings in the US capital to discuss global economic issues. This year, the focus is on high global inflation rates, the consequences of climate change and the turmoil in the banking sector, amongst other things. The overarching aim of the IMF is to promote international economic and monetary cooperation and the stability of the international monetary system. The Federal Ministry of Finance and the Bundesbank jointly exercise Germany’s rights and obligations in the IMF. Responsibilities are laid down in the German IMF Act.

The foundations for establishing the IMF and the World Bank were, incidentally, agreed at a UN conference in Bretton Woods in 1944. Germany joined the Fund in 1952. It currently has 190 member countries.