ECB's high borrowing costs under scrutiny amid German economic slowdown

The European Central Bank’s (ECB) strategy of maintaining high borrowing costs, even as the German economy shows signs of a steep slowdown, has come under discussion. This development was revealed on Tuesday, with Robert Holzmann, a key figure in the ECB, addressing potential hikes in peak borrowing costs at a Bloomberg event.

Holzmann cited wage negotiations and rising oil prices as factors influencing the ECB’s stance. He also referenced the bank’s pledge to sustain high borrowing costs in an effort to manage inflation. This comes amid ongoing policy debates over further rate increases beyond 4% during what is being termed as the ECB’s historic monetary tightening phase.

The impact of these rate hikes on inflation will be revealed with the release of September data. A significant slowdown in Germany’s economy is expected, which will likely influence future discussions regarding borrowing costs and monetary policy.

Holzmann acknowledged ECB President Christine Lagarde’s commitment to maintaining high borrowing costs, despite the economic uncertainty. He also touched upon the Asset Purchase Programme (APP), discussing potential asset sales within the program.

In addition to this, Holzmann expressed optimism about potential growth surprises from China and voiced his support for discussions on ending reinvestment in the pandemic portfolio. He also underlined the role played by Eurostat, the statistical office of the European Union, in these economic considerations.

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