Belgium (Brussels Morning Newspaper) German central bank governor Joachim Nagel joined on Tuesday a long line of policymakers urging the European Central Bank (ECB) to raise interest rates in order to help fight inflation.
An increasing number of economists are fearing that high inflation rate might become entrenched in the European economy, and have started calling for quick rate moves from the ECB, together with the rapid unwinding of stimulus programmes.
Nagel, a former Bundesbank board member with ties to the German ruling Social Democrats (SPD), succeeded conservative Bundesbank chief Jens Weidman, who resigned unexpectedly in October with more than five years left in his term.
Speaking at a conference hosted by the Bundesbank on Tuesday, Nagel said ECB should stop bond purchases by the end of June, and then decide to raise the deposit rate at its following policymakers’ meeting. “If both the incoming data and our new projection confirm this view in June, I will advocate a first step towards normalising ECB interest rates in July,” said Nagel.
Increasing the deposit interest rate would be a surprising change of strategy for the European central bank. The deposit rate is currently sitting at a record low of -0.5%, and has spent a total of eight years below zero.
While the bank openly said such a move was highly unlikely several months ago, Nagel’s call echoes statements by the French central bank governor Francois Villeroy de Galhau, who also called for deposit rates to move back above zero during this year. Such a move would probably take three separate increases, in 0.25% steps.
Nagel also added urgency to his call, by claiming that delaying the decision could force the ECB to take more abrupt steps at a later date. “The risk of acting too late is increasing notably,” said Nagel. “The more inflationary pressures spread, the greater the need for a very strong and abrupt interest rate hike.”