The signs are growing: in July the European Central Bank is likely to raise the reference rate after much hesitation. At least that’s what ECB director Isabel Schnabel suggests.
Given the highest inflation rate in over 40 years, the turnaround in interest rates in Europe could happen faster than previously thought. The European Central Bank is likely to raise its benchmark interest rate as early as July and not just in the autumn, as it last predicted. At least that’s what German ECB director Isabel Schnabel expects.
In an interview with “Handelsblatt” he said: “We must prevent high inflation from becoming fixed in expectations. Now talking is not enough, we must act”. And again: “From today’s point of view, I think a rate hike in July is possible”.
Schnabel is now making it clear for the first time that the ECB intends to adjust its course to extremely accommodative monetary policy. More recently, several experts have criticized the central bank led by its boss Christine Lagarde for not already following the example of the US Federal Reserve and initiating a turnaround in interest rates.
Inflation is as high as 40 years ago
The reason for this is the increase in prices. In April, the inflation rate in Germany was 7.4% compared to the same month last year. In the euro area, inflation rose to 7.5 per cent. The last time prices went up this much was over 40 years ago.
The central bank can reduce inflation by raising interest rates and reducing purchases of government bonds. Most importantly, however, the ECB can, with appropriate announcements, ensure that people have confidence that it is taking its price stability mandate seriously and is guaranteeing an inflation rate of two per cent per year over the medium term.