Bundesbank urged ECB to continue raising rates

Bundesbank President Joachim Nagel said during a speech in Frankfurt today that the European Central Bank needs to continue raising key interest rates, despite the fact that this will suppress economic activity.

«We need to ensure that inflation slows down in the near future, so I will continue to do everything possible so that the ECB governing council does not stop too early, and we continue to move towards normalization of monetary policy. Even if our measures will contribute to the deterioration of economic dynamics,» Nagel said.

According to the head of the German central bank, too slow tightening of monetary policy in Europe can lead to serious consequences. As it’s known, the ECB raised all three key interest rates by 75 basis points at a meeting in October. The base interest rate on loans was increased to 2%, the deposit rate to 1.5%, the rate on margin loans to 2.25%.

At the same time, Nagel stressed that the normalization of the ECB's policy means not only raising rates, but also reducing the amount of assets on its balance sheet. Earlier, the regulator said that the topic of the so-called quantitative tightening and its basic principles will be agreed at the December meeting.

The views of the Bundesbank are shared by ECB Deputy Chairman Luis de Guindos. He also said that further rate hikes are necessary to tighten financial conditions, which would weaken inflation in the eurozone. And although an increase in rates will lead to a reduction in aggregate demand, consumption and investment, the absence of any action on the part of the ECB may lead to an even greater deterioration of the situation.