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ECB needs exit plan from zero rates By Reuters


BERLIN (Reuters) – The Bavarian ally of Chancellor Angela Merkel said on Tuesday consumer price inflation was the biggest challenge facing Germans, calling on the European Central Bank to prepare an exit plan from zero interest rates.

Markus Soeder (premier of the south-western state of Bavaria) made these comments after Friedrich Merz was criticized for his loose monetary policies.

Armin Laschet (the conservatives’ leading candidate for Sunday’s elections) has not been able to turn Merkel’s high approval ratings and continued support for his party. All polls show that Olaf Scholz, Finance Minister, and his Social Democrats are in control.

Soeder stated that policy makers need to take measures to stop rising consumer prices from continuing to affect households. He also said that this would be a form of “cold Expropriation”.

Germany’s Harmonized Annual Consumer Price Inflation (HICP), which reached 3.4% in August was a new 13-year record. This highlights the growing pressures on prices as Europe’s biggest economy struggles to recover from the pandemic.

In August, the national inflation rate (CPI), soared up to 3.9%. This was its highest level since December 1993 after Germany’s reunification.

Jens Weidmann, President of Bundesbank, stated that his advisors had predicted inflation reaching 5% in Germany this year. However the situation would change due to special pandemic factors like a temporary VAT reduction which may have affected comparisons.

“The ECB needs to act by the deadline of 5%. Soeder stated that a planned exit from the zero-interest rate policy is necessary.

The ECB expects that the annual inflation rate for the eurozone will be 2.2% by the end of this year. This would fall to 1.7% next and 1.5% 2023, well below the 2% target.

On Sept. 9, the ECB announced that it will reduce its emergency bond purchases in the next quarter. This is a small step toward removing the assistance that helped to prop up the economy of the euro area during the crisis.

Isabel Schnabel (ECB Board Member) said that Monday’s announcement by the bank would allow it to leverage its bond-buying programme in order to gauge investor expectations regarding an interest rate rise. This is because the latter won’t happen before the former.

Merkel will step down as the leader of the bank after 16 years.

Merkel and Scholz avoided direct criticisms of the ECB’s monetary policies in the past 16 years. This emphasized the importance to preserve the bank’s autonomy.

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