New Bundesbank boss warns of longer inflation

Joachim Nagel takes over chief position from Jens Weidmann. “Monetary policy must” be on guard in any case, “he says.

The new President of the German Bundesbank, Joachim Nagel, has warned the European Central Bank (ECB) to be vigilant in view of the high inflation. He currently sees the danger “that the inflation rate could remain high for longer than currently expected,” said Nagel at his inauguration on Tuesday. Former Bundesbank President Jens Weidmann expects the recent sharp rise in inflation to decline in the course of this year.

Monetary policy must “be on guard in any case,” said Nagel. The medium-term price outlook is “extraordinarily uncertain”. The inflation rates of up to 5 percent in the euro area, in Germany even higher, caused many people concern. People with lower incomes are often particularly affected by inflation.

In order to maintain the population’s confidence in the stability of the value of money, central banks should “maintain their independence and interpret their mandate narrowly,” said Nagel. If price stability required it, however, the ECB Council had to “act and adjust its monetary policy stance”.

Nagel announced that he would like to continue the previous line of the Bundesbank and his predecessor Jens Weidmann. The Bundesbank has always drawn attention to inflation risks at an early stage. In addition, she always warned not to fix the very expansionary course of monetary policy for too long and to keep options for action open, “stressed Nagel.

Weidmann: “Uncertainty remains high”

The German Finance Minister Christian Lindner (FDP) called price stability an “indispensable prerequisite” for the functioning of the market economy. He described Nagel’s assumption of office as a “decisive moment”. The Bundesbank has built an international reputation for itself with its stability-oriented monetary policy. “I am sure that you, Mr. Nagel, stand for a course of monetary policy tradition and continuity of the Bundesbank because of your vita”.

The former Bundesbank President Weidmann also commented on the price increase. It is likely that the inflation rate will decline again in the new year, he said at the event in Frankfurt am Main. However, it is unclear whether it will easily approach the target of 2 percent. In such a context of uncertainty, it is “particularly important to strengthen people’s trust in the ability and will of the central bank to pursue its primary goal of maintaining monetary value without compromises,” warned Weidmann. “The uncertainty remains high as to whether the rates will in future easily fall below the target of two percent or whether they will solidify,” he said.

Weidmann resigned prematurely at the turn of the year after more than ten years. For him, it was always central that the central bank respect its limited mandate, said Weidmann. “Here I have certainly drawn the dividing line between monetary policy and fiscal policy more closely than others.” He also repeatedly pointed out the risks and side effects of unconventional monetary policy. “This is because, in the long term, they can undermine the pursuit of price stability by interweaving monetary and fiscal policy more closely.”

ECB President Christine Lagarde emphasized the dynamism of the global economy and the resulting need for flexibility for the ECB. Inflation is a problem for all people, she said. “We don’t take this concern lightly, we take it very seriously.”

The 55-year-old Nagel was appointed the new President of the Deutsche Bundesbank by Federal President Frank-Walter Steinmeier on Friday. The Federal Cabinet (Council of Ministers, note) had already decided to appoint Nagel to the head of the German central bank in December. Weidmann had announced in October that he would leave his post early “for personal reasons” at the end of the year. He had repeatedly criticized the ECB’s loose monetary policy.

(APA/AFP/Reuters)

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