Daily Times

Soaring inflation in the eurozone meant the European Central Bank would soon have to bring an end to its long-standing policy of negative interest rates, the head of the German central bank said Friday.

“It’s for sure that negative interest rates are a thing of the past,” Joachim Nagel said after a meeting of G7 finance ministers and central bankers in Koenigswinter, Germany. Consumer prices rose at a rate of 7.5 percent in the eurozone in April, an all-time high for the currency club and well above the ECB’s two-percent target. The “conclusive decision” from the upwards trend in inflation was that interest rates “have to go up”, Nagel said.

Bringing rates out of negative territory would draw a line under years of accommodative ECB policy to boost growth as the European economy listed. After an end to the ECB’s asset-purchasing stimulus, the first interest rate could come “possibly in July”, Nagel said.

Further hikes could follow “shortly” after that, the Bundesbank boss added. The initial hike would be the ECB’s first in over a decade and would lift rates from their current historically low levels.

These include a minus 0.5 deposit rate which effectively charges banks to park their excess cash at the ECB overnight. Inflation was a “huge danger” for the economy, German Finance Minister Christian Lindner said at the same press conference, calling for “consistent measures” to stop price rises getting out of control.

Nagel pushed back a discussion on the size of any hikes, after the US Federal Reserve raised rates by an unusually large 50 basis points at the beginning of May. “To start the whole process by raising rates, that is of utmost importance,” Nagel said. “The rest we will discuss in the next governing council meeting,” he said.

ECB policymakers will decide their course of action in upcoming June 9 and July 21 meetings, with the July date now seen as the most likely opportunity for a rate announcement.