“In the long run, high inflation rates are poison for the stability of our economy.”
(Photo: Reuters)
Frankfurt, Berlin Bank President Christian Sewing expects the European Central Bank (ECB) to react soon to the further increase in inflation. “Despite all the uncertainties, there is a lot to be said for ending the net bond purchases soon and sending a first interest rate signal,” said the Deutsche Bank boss in his function as President of the Association of German Banks (Bdb) on Monday in a video link, according to the text of the speech . “A signal that is urgently needed.”
The primary goal of the ECB is stable prices in the euro area in the medium term with an inflation rate of two percent. In the currency area of the 19 countries, inflation jumped to a record level of 7.5 percent in March 2022.
In Europe’s largest economy, Germany, too, sharply rising energy prices drove the annual inflation rate above the seven percent mark in March: At 7.3 percent, the highest level was recorded in reunified Germany. Rising inflation can be combated with higher interest rates.
“In the long run, high inflation rates are poison for the stability of our economy. And not just because high inflation rates unsettle companies and consumers alike,” said Sewing. “It’s also about the fact that the policy of cheap money has been associated with harmful redistribution effects for years.”
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Above all, people with lower incomes would be burdened. Higher inflation rates reduce the purchasing power of consumers because they can then afford less for one euro.
With each passing month, the risk of inflation settling at high levels is growing, Sewing said. “I can therefore only warn that we will continue the policy of cheap money and that these redistribution effects with all their social consequences will intensify.”
The ECB has kept interest rates extremely low for years. Commercial banks currently have to pay 0.5 percent interest when they park money with the central bank. The key interest rate in the euro zone is at a record low of zero percent. The ECB Governing Council meets on April 14 for its next monetary policy meeting.
More: Ex-Bundesbank President Weber criticizes monetary policy: “The ECB has brought itself into this difficult situation”