The European Central Bank must keep raising interest rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high all through 2023, Bundesbank President Joachim Nagel repeats.
The German economy is “likely” to suffer a recession over the winter if the energy crisis (specifically Russia cutting gas supply) continues to deepen, he said.
He explained that ”the probability is rising that inflation will be higher than previously forecast and will average six point something next year,” Nagel said, indicating a big upside risk to the Bundesbank’s previous, 4.5% projection for 2023.
“With the high inflation rates, further interest rate hikes must follow,” Nagel said.
Meanwhile, EUR/USD fell from 1.0090 to 1.0024 and fresh one-month lows while the greenback continues to firm.