Central banks’ balance sheets swelled with the recovery during the pandemic. Joachim Nagel, the head of Germany’s central bank, says that bonds must be phased out soon.
European the central bank (ECB) must start reducing its hugely inflated balance sheet in the near future, says the governor of the German central bank, the Bundesbank Joachim Nagel according to news agency Reuters.
The ECB, which is fighting against inflation by tightening monetary policy, ended its securities purchase program before the interest rate hike that started this year. In July, the central bank raised interest rates by 0.50 percentage points and at the beginning of September by 0.75 percentage points in an attempt to curb inflation.
According to Nagel, the governor of the central bank representing Europe’s largest economy, the ECB should therefore lighten its balance sheet and give up the securities and bonds acquired in the purchase program.
According to Nagel, who favors a strict line in monetary policy, the ECB must clearly communicate in connection with its next meetings that the central bank is able to control wildly galloping inflation.
“We must implement our monetary policy firmly. In the near future, the Eurosystem must also reduce its bonds,” says Nagel to the German newspaper Süddeutsche Zeitung.
President of the ECB Christine Lagarde is already stated that the central bank will continue rate hikes until they reach a level that no longer stimulates economic growth. Lagarde has hinted that interest rates will be raised several times in the near future.
ECB relaxed its monetary policy most recently due to the corona pandemic. The central bank increased the money supply by buying securities from the market at a historic pace.
The ECB’s goal is to have the inflation rate slow down to two percent. In September, inflation accelerated to 10 percent in the euro area. Core inflation, closely monitored by economists and central bankers, strengthened to 6.1 percent. In August, it was 5.5 percent.
The central bank’s task is hampered by the energy crisis ravaging the European economy. Strong tightening of monetary policy can push the economy into recession because it reduces corporate investment and household consumption.
#Central #banks #Bundesbank #ECB #start #reducing #balance #sheet #future
