Interest Statement by European Central Bank Governor Nagel: Will Europe Raise Interest Rates?

Bundesbank President Joachim Nagel said on Wednesday that if inflation develops as the European Central Bank predicted last week, it will need to raise interest rates further, especially as risks shift to even higher values.

The ECB raised interest rates by 50 basis points to 3% last week, but did not provide any guidance on future moves as banking sector turmoil overshadowed the outlook and risks escalating into a broader crisis that could affect the real economy.

Nagel Signals European Central Bank Will Increase Rates

Nagel, an influential voice on the ECB’s 26-member Governing Council, said banks are doing a good job of coping and the industry is resilient with strong buffers, so the risk of the crisis spreading is low.

Speaking in London, Nagel said:

“If inflation develops as predicted, further rate hikes should be made at the upcoming meetings. We have to contain inflation, and to do so we must be brave and determined. In my view, we are not done yet.”

Markets were expecting the ECB to raise rates by another 100 basis points in the coming months just a few weeks ago, but the collapse of Silicon Valley Bank and the bank collapse caused by Credit Suisse’s problems faltered those estimates.

Investors are now only forecasting an increase of 55 basis points and the next move will be in May; this forecast is still higher than on Monday, when the ECB was done and they claimed the next step would be a rate cut.

Nagel said, “We are ready to take the necessary response to maintain financial stability in the euro area if the tension in the financial markets continues or spreads to the euro area.”

*Not investment advice.