Nagel: ECB interest rate hikes are yielding results
Bundesbank President Joachim Nagel has said he is confident that inflation has peaked. Speaking at the joint press conference with Federal Finance Minister Christian Lindner on the sidelines of the Annual Meetings of the International Monetary Fund (IMF) and the World Bank in Marrakech, Morocco, he explained that, although there was still uncertainty as to when inflation would return to the 2% target, the ten interest rate hikes carried out by the European Central Bank (ECB) to date are yielding results.
The fact that the interest rate hikes were having this effect – inflation had more than halved since its peak and most recently stood at just over 4% in Germany, as in the euro area as a whole – was the crucial point from a central bank perspective, Mr Nagel went on to say. He pointed out that the IMF’s current inflation projections for 2024 put annual average inflation rates at 3.5% in Germany and 3.3% in the euro area. Looking further ahead, Mr Nagel said that the Bundesbank expected Germany to post a two in front of the decimal point in 2025. For the euro area, the ECB most recently forecast an inflation rate of 2.1% for 2025.
Against this backdrop, the Bundesbank’s president explained that the ECB remained fully committed in monetary policy terms to bringing inflation back down to its target of 2%. The way forward in terms of interest rate policy depended on the incoming data, which are being monitored and analysed constantly. The Governing Council of the ECB last raised key interest rates by 25 basis points in mid-September, with the deposit and main refinancing rates standing at 4.00% and 4.50% respectively since then.
Looking at economic developments in Germany, Mr Nagel added that factors such as the decline in foreign demand had hit industry and that the high financing costs were weighing on the construction industry. However, the Bundesbank’s president also saw rays of hope: the labour market situation remained good. In addition, strong wage growth and lower inflation were boosting private consumption.
At the same time, Mr Nagel said that Germany was not the sick man of Europe economically. After the challenges of the past few years, there was much potential for catching up. The Bundesbank's president emphasised that he was sure Germany would use this potential. Federal Finance Minister Christian Lindner agreed with Mr Nagel that prophecies of doom were not appropriate. He, too, emphasised Germany’s ability to achieve a turnaround and also pointed to the German economy’s sound foundations.