The chief executive of Germany’s biggest bank has called on central bankers to tighten monetary policy to provide “countermeasures” against surging inflation, which he warned was producing risky side effects and would last longer than policymakers expected.
Deutsche Bank’s chief executive Christian Sewing said: “The supposed cure-all of the past years — low interest rates with seemingly stable prices — has lost its effect, now we are struggling with the side effects. Monetary policy must counteract this — and sooner rather than later.”
Speaking at a conference in Frankfurt on Monday, he added: “The consequences of this ultra-loose monetary policy will become increasingly difficult to fix the longer central banks fail to take countermeasures.”
Sewing is a longstanding critic of the European Central Bank’s use of negative interest rates to stimulate the economy.
His comments reflect the aversion of many German banks to negative interest rates, which they argue have eroded their profit margins. They also highlight growing concern about the recent rise in German inflation to a three-decade high of 4.6 per cent in October.
The $27tn rise in global government, corporate and household debt to $226tn last year, based on IMF figures, was “simply unsustainable in the long term and a constant potential trouble spot for the global financial markets”, Sewing warned.
The head of Deutsche Bank, one of Europe’s biggest providers of services in debt markets, said: “The ultra-loose spending policies of many governments are only made possible by an equally generous monetary policy that drastically intervenes in pricing on the bond market.”
He added: “But this, in turn, has considerable risks and side effects: inflation is on the rise around the world faster than any economist would have anticipated a year ago.”
While many central banks around the world are tightening monetary policy by ending asset purchases and raising interest rates, the ECB is expected to continue buying bonds for at least another year and has insisted a rate rise is still a distant prospect.
Christine Lagarde, president of the ECB, said on Monday that while rising inflation was a major concern for eurozone citizens, the “outlook for inflation over the medium term remains subdued”. She added in a speech to the European parliament that the conditions for the ECB to raise rates were “very unlikely to be satisfied next year”.
In contrast, US Federal Reserve vice-chair Richard Clarida last week said the “necessary conditions” for US interest rates to rise from their current near-zero level will be met by the end of next year should the economy progress as expected.
Bank of England governor Andrew Bailey has also said the BoE “won’t bottle it” when it comes to potential rate rises, if the economy develops in line with its forecast.