German central bank chief sees ECB rate rise ahead in December

The European Central Bank (ECB) is heading towards an interest rate rise in December, Bundesbank President Joachim Nagel said in a speech in Berlin on Tuesday.

Nagel, who is a member of the ECB Governing Council, said, according to the text of his speech, that the latest assessment showed a rise is “very likely to be necessary.”

“From today’s perspective, (…) there is likely to be little alternative to an interest rate rise unless the inflation outlook improves significantly.” The ECB Governing Council will hold its next monetary policy meeting on December 17.

In response to the rise in inflation, driven primarily by higher energy prices, the eurozone’s monetary authorities have already raised key interest rates twice this year. At their meeting last week, they left the deposit rate – which is important for banks and savers – at 2.5%.

Higher key interest rates make loans more expensive, which can curb demand and thus dampen inflation, but can burden would-be investors, thereby slowing down the economy.

Inflation rate remains elevated

The war in Iran is driving up energy prices and fuelling inflation. In September, consumer prices in the eurozone were 3.8% higher than in the same month last year. This is the highest figure in three years. The ECB’s latest assessment is predicting higher inflation until at least 2027.

The ECB is aiming for an inflation rate of 2% in the medium term for the eurozone, which now comprises 21 countries. The central bank regards this target as fulfilling its most important objective: ensuring a stable euro and maintaining people’s purchasing power.