DAccording to Bundesbank President Joachim Nagel, the period of extremely low interest rates in the European Monetary Union will soon come to an end. “There are already many voices – I’m one of them – who would then say that the first rate hike could be made in July,” he said during a discussion with young citizens. Given the current data, there is at least some evidence for a possible tightening, he added. Nagel recently signaled that negative interest rates in the euro area should be history “relatively soon”.
The deposit rate set by the European Central Bank is currently minus 0.5 percent. That means banks have to pay interest if they hoard excess funds in central bank accounts. The prime rate is currently zero percent. The next interest rate meetings of the ECB are scheduled for June 9th and July 21st.
Federal Finance Minister Christian Lindner said in an interview with the “Spiegel” that he welcomed the fact that the ECB would soon be taking interest rate steps. However, the drivers of inflation are the energy prices and the disrupted supply chains, less the central bank policy: “But the responsibility lies primarily with the state,” emphasized the FDP leader. The Bundestag has just passed the 2022 tax relief law, one of the reactions of the traffic light coalition to the sharp rise in energy prices.
“Sometimes you pinch yourself”
The ECB is under pressure because the inflation rate of 7.5 percent has shot far above the central bankers’ target – they are aiming for an inflation rate of around 2 percent in the medium term. The Bundesbank also sees urgency as it now expects a high rate of inflation of almost seven percent for this year in Germany.
Nagel also emphasized that the Bundesbank had repeatedly pointed out that there could be “an imbalance” on the real estate market in Germany and that there were signs of overheating: “I think the interest rate trend will also contribute to the fact that maybe in one or the other The price development is no longer as it was observed in the last ten years. I think that also helps a lot here to curb overheating tendencies.”
At the town hall event, during which young questioners were expressly allowed to use his first name, the President of the Bundesbank also spoke about how he got his position. He said his professional profile and not his SPD party book was decisive for his post. “I’m a Bundesbank native, I learned the Bundesbank business – from scratch.” He can show much more than a party book: “As Bundesbank President, I’m not here now because I’m a Social Democrat.” Nagel is Jens Weidmann’s successor at the helm of the Deutsche Bundesbank since the beginning of the year. He explained that he was surprised by Weidmann’s early withdrawal and that he hadn’t really thought that he would be chosen.
Nagel chatted inside the box: he received the first call in connection with his nomination last year from finance minister Lindner, at a time when he was not yet finance minister. “So it’s important that you have one or the other contact, even though we didn’t know each other before,” the economist admitted.
He also remembers the decisive meeting with Chancellor Olaf Scholz (SPD) in December 2021 very well: “Afterwards – you can say it like that – I went out of the conversation with a sweaty shirt.” He thought it would be was “rather semi” gone. But an SMS from Lindner then made it clear that he would receive the post.
At the same time, the head of the Bundesbank admitted that after just a few months in office, he still hadn’t really settled in: “Sometimes you pinch yourself.” had worked at the Bundesbank for a total of 17 years. The doctor of economics sat on the board for a total of six years. In 2017, the Karlsruhe native moved to the Kreditanstalt für Wiederaufbau (KfW) and in 2020 to the Bank for International Settlements (BIZ), before returning to the German central bank in 2022.