Deutsche Bank expects ECB reaction to inflation

The president of Deutsche Bank and the Association of German Banks (BdB), Christian Sewing, stated that he expects a prompt reaction from the European Central Bank (ECB) in the face of the new increase in inflation.

“In the midst of all the uncertainties, there is much to be said in favor of putting an end to the net purchase of bonds soon and giving a first signal in the interest rate,” Sewing said in a video conference at his function as head of the BdB.

It is “a signal that is urgently needed now,” stressed the president of the entity that brings together German banks. Sewing said that the sooner the ECB adopts the countermeasures, the better it will be for the development of the German and European economy.

The main objective of the ECB is to keep prices stable in the medium term in the eurozone within the framework of an inflation rate of two percent. Inflation in the 19 countries that make up the eurozone climbed in March 2022 to a record level of 7.5 percent per year.

Also in Germany, Europe’s largest economy, soaring energy prices pushed the annual inflation rate past the seven percent mark in March to 7.3 percent, the highest level on record. since German reunification in 1990.

Higher rates to combat inflation

“Long-term high inflation rates are a poison for the stability of our economy. And this is not only because high rates of currency depreciation worry businesses and consumers alike,” Sewing said.

“It is also about the fact that the cheap money policy has been accompanied by harmful redistributive effects for years,” said the BdB president.

Sewing said that people with lower incomes are the most affected. Higher inflation rates reduce the purchasing power of consumers because they can then get less for a euro.

The banking executive stated that each month the danger of inflation stabilizing at a high level grows. “That is why I can only warn that we continue with the policy of cheap money and that then these redistribution effects with all their social consequences are intensified,” he warned.

The European Central Bank has kept interest rates at extremely low levels for years. The key interest rate in the eurozone is at a record low of zero percent. Commercial banks currently have to pay 0.5 percent interest when they deposit money with the Central Bank. The Governing Council of the ECB will hold its next monetary policy meeting on April 14.

Source: dpa