Bundesbank President Joachim Nagel has cautioned against using monetary policy instruments to limit risk premia. “Unusual monetary policy measures to combat fragmentation can be justified only in exceptional circumstances and under narrowly-defined conditions,” he said at the Frankfurt Euro Finance Summit.

The fourth event in the “Designing climate policies” series saw experts from academia, politics and public institutions discuss how the ecological transformation can be financed. Bundesbank Vice-President Claudia Buch kicked off the event, which the Bundesbank organised jointly with the Center for Liberal Modernity and the Potsdam Institute for Climate Impact Research.

Demographic developments will put the finances of the pension insurance scheme under pressure in future. The Bundesbank’s experts present long-term simulations on this topic in the current Monthly Report. These simulations illustrate how the government plans to achieve a permanently stable replacement rate of 48% would affect the pension contribution rate and the federal budget. They also show the effects of two reform options on the replacement rate, the contribution rate and the federal budget. Both options are international standard practice. One ties pensions in payment to inflation, whilst the other links the retirement age to rising life expectancy.

Bundesbank President Joachim Nagel has warned that central banks must not respond to the current high inflation rates with too little, too late. “If monetary policy falls behind the curve, even stronger hikes in interest rates could become necessary to get inflation under control,” he said at the Joint Spring Conference co-hosted by the Bundesbank and the Banque de France in Eltville am Rhein. “This would create much higher economic costs,” he cautioned.