Higher interest rates are needed in the eurozone, whose central bank has joined others around the world in raising rates to cool prices, the head of Germany’s Bundesbank said on Saturday.
Uncertainty over Russian energy imports pushes euro zone closer to contraction in 2023 due to high inflation, weaker global demand and lower confidence, some European Central Bank insiders say (ECB).
The ECB raised rates by 0.75 percentage points at its last meeting in September to depress eurozone consumer prices, which are at a record high.
“Further interest rate hikes will be needed to bring the inflation rate down to 2% over the medium term – not just at the monetary policy meeting at the end of October, in my view,” Joachim Nagel said in Washington, according to a statement issued by the German central bank.
“In any case, the Governing Council of the ECB must not let go too soon. Because we have to make sure that high inflation ends,” he said.
“If inflation expectations were to unanchor on the upside, interest rates would have to rise even faster or higher,” warned the head of the central bank of the European Union’s largest economy.
“And the macroeconomic costs of bringing inflation back to the desired level would also be higher. This is a scenario that we in the Governing Council of the ECB absolutely want to prevent.”
Inflation in the 19-nation eurozone hit a new high of 10% in September.
ECB governors hold their next monetary policy meeting on October 27, with observers expecting another rate hike of 0.75 percentage points.
The eurozone has been battered by soaring energy prices ahead of winter as Russia has drastically cut gas supplies to Europe in recent months, in a move seen as retaliation for Western sanctions against Moscow’s war in Ukraine.
No gas has passed through the crucial Nord Stream 1 pipeline between Russia and Germany since late August.