European Central Bank (ECB) Governing Council member and Bundesbank head, Joachim Nagel, expressed uncertainty over whether interest rates have reached their peak amidst persistently high inflation.
Nagel posed a crucial question, "Have we reached the plateau?" on interest rates. He elaborated that it "cannot yet be clearly predicted" as the inflation rate remains high and forecasts show only a slow decline toward the target level of 2%. He emphasized that borrowing costs are expected to "remain at a sufficiently high level for a sufficiently long time," but the exact interpretation hinges on incoming data.
These remarks come a week after the ECB's most contentious meeting yet in its campaign to quell inflation, which has lasted over a year. The result was a 10th consecutive hike in the deposit rate, taking it to 4%. However, with the euro-zone economy faltering, there were calls for officials to pause.
Addressing Germany's economic health, Nagel pushed back against pessimism, stating that describing Germany as the 'sick man' "seems exaggerated." He attributed the current sluggish growth to specific factors such as the global economic slowdown, Russia's conflict with Ukraine, and reduced public spending.
Despite expecting a contraction in Germany's economy in the third quarter of 2023, Nagel remained optimistic about future growth. He cited positive trends such as large order backlogs in parts of the industrial sector, stable consumption, and a robust labor market. Nagel projected that "once we get past the worst of these special factors, the weak growth should also ease. We expect the economy to grow again in 2024."
Meanwhile, Latvia’s central bank chief, Martins Kazaks, highlighted structural issues behind recent oil price hikes. He suggested that this presents heightened inflation risks and expressed skepticism about the timing of anticipated rate cuts, asserting, "I think expecting rate cuts mid next year is somewhat too early."
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