In Frankfurt am Main, Germany, on the 5th of July 2023, Joachim Nagel delivered a keynote speech at the annual Bundesbank-Symposium titled “Banking Supervision in Dialogue.” Unfortunately, he couldn’t be present in person and expressed his regret for it.
During his address, Nagel acknowledged the representation of his colleagues, Mr. Walch and Ms. Braun-Munzinger, who were attending the event. He also mentioned that he and Claudia Buch, the Vice President of Bundesbank, had prior commitments at the Federal Cabinet meeting, discussing the national budget to be later approved by the Cabinet. He extended his appreciation to Mark Branson, the President of BaFin, who was the second keynote speaker.
Nagel referred to an article in The Economist from 2020, titled “The eternal zero,” which discussed the lasting effects of low-interest rates due to the pandemic. However, he highlighted that the economic impact of the pandemic was instrumental in the current interest rate shift.
The speech addressed the economic situation, discussing how the energy crisis significantly affected the German economy in the winter of the previous year, causing a “technical” recession. The high inflation particularly burdened private consumption, but it was expected to stabilize with the German economy’s return to a cautious expansion course in the spring.
Regarding inflation, Nagel cited that in 2022, German consumer prices rose by 6.9%, the highest since 1974. The pandemic-induced surge in demand and supply shortages in various industries contributed to this inflationary pressure.
The speech then turned to the current monetary policy. The ECB had raised interest rates by 400 basis points over the past year, the largest and fastest rate hikes in Eurozone history. Additionally, they had ceased net bond purchases and reinvestment in the APP program.
Looking ahead, Nagel emphasized that further interest rate increases were likely, but the exact extent and duration depended on uncertain inflation developments. Geopolitical factors, such as the Russian-Ukrainian conflict, could play a role in shaping the economic landscape.
Nagel urged caution in predicting the future and advised against overestimating the present situation due to “Recency Bias.” He emphasized the importance of effective communication between central banks, regulatory authorities, and the banking sector to prepare for any economic challenges.
In conclusion, Nagel expressed confidence that the symposium would contribute valuable insights and discussions on addressing high inflation. He thanked the audience for their attention and wished them engaging discussions throughout the event.