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Bundesbank chief Nagel: "We have probably overcome the peak of inflation"

Photo: Metodi Popov / IMAGO

The medicine of high interest rates is effective against inflation – at least that's what Bundesbank President Joachim Nagel says. "We have probably overcome the peak of inflation," Nagel said at the autumn meetings of the International Monetary Fund (IMF) and the World Bank in Marrakech. On the other hand, there is uncertainty about how quickly inflation will now fall and when it will reach the central bank's target of two percent. "The ten interest rate hikes, which is the crucial point from the central bank's point of view, are having an effect," he said.

It is necessary to see how the transfer of monetary policy to the economy works, Nagel continued. Central bankers refer to this as "transmission". The labour and financial markets have changed since the last cycles of interest rate hikes. For example, there is still a high level of excess liquidity in the financial sector. "But overall, I'm satisfied with how monetary policy is working," Nagel noted. From the Bundesbank's point of view, this is the decisive factor. The last time the ECB raised interest rates was before the euro debt crisis in 2012.

Commenting on the economic situation in Germany, Nagel said: "Germany is not the sick man in Europe right now." Economic output is likely to decline in the current year – foreign demand in industry is declining significantly, construction is struggling with increased financing costs and private households are holding back on consumption. But the labour market situation remains good. "We're seeing strong wage increases," Nagel said. As inflation declines, private consumption will also pick up again.

The European Central Bank (ECB) has raised key interest rates by a total of 2022.4 percentage points since the summer of 50 – most recently by a quarter of a percentage point in September. This was the tenth increase in a row. The deposit rate, which banks receive from the central bank for parking surplus funds, which is trend-setting on the financial market, is now 4.00 percent. This is the highest level since the start of monetary union in 1999. The ECB's next interest rate meeting is on October 26.