Germany’s central bank governor on rates, inflation outlook

Joachim Nagel, Germany’s central bank governor and ECB member, shares his latest thoughts on inflation and the possibility of rate hikes in the euro zone.

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The ECB will soon hike rates for the first time in more than a decade, a member of the central bank’s governing council told CNBC Friday.

The ECB has been in the spotlight for its less aggressive stance on monetary policy compared to other central banks. However, expectations of a rate rise have grown in recent months amid continuous increases in inflation, with market players now pointing to at least four rate hikes before the end of the year.

“We are on the right path,” Joachim Nagel, president of the Germany’s Bundesbank and one of the ECB’s more hawkish members, told CNBC’s Annette Weisbach.

“In our very important meeting in March we decided to end our net asset purchases and in the June meeting, dependent on data, we will decide to stop maybe — and I say this because this data are speaking a very convincing language here — that we stop our purchases and afterwards I believe we will see rather soon the first rate hikes,” he said.

His comments indicate that the first interest rate could rise in July, once the ECB has debated new economic forecasts released the prior month.

Nagel, who has been in the job since January, said he has been warning about higher inflation since taking on the role, and is now seeing more momentum toward increasing interest rates.

“I pretty much appreciate that many colleagues now from the Governing Council are joining my position here,” he said.

His comments follow those of Francois Villeroy de Galhau, head of the Bank of France and fellow ECB member, who said he expects a gradual increase in rates from the summer onward.

Meanwhile, Italy’s Ignazio Visco, the governor of the Bank of Italy and a notable ECB “dove,” told CNBC that a rate hike “may be during the third quarter or at the end of the year, but it has to be gradual.”

Central banks are under immense pressure to bring down inflation as consumer prices edges ever higher, fueling a cost-of-living crisis.

The US Federal Reserve earlier this month raised its benchmark interest rate by 0.5% — its most aggressive hike in 22 years — in the second of what is expected to be a series of hikes this year.

Inflation is currently running at a 40-year high in the US, with the consumer price index rising 8.3% year-on-year in April.

The Bank of England, meanwhile, raised rates in May for the fourth time since embarking on its post-Covid normalization in December. Still, UK inflation has remained doggedly high, hitting a 40-year high of 9% on Wednesday.

The ECB has until now, however, remained more resistant to hikes, insisting that price pressures would diminish in the second half of the year.

Euro zone inflation hit a record high for the sixth consecutive month in April as the ongoing war in Ukraine and subsequent impact on Europe’s energy supply weighed on the region’s economy.

Headline inflation in the 19-member region reached 7.5% in April, surpassing the 7.4% reached in March.

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