Inflation will remain at a very high level, German central bank president says

It seems to be the case that inflation is very stubborn. So it looks like that inflation will remain on a very high level. So the inflation numbers, France, Spain, I'm not sure if they're really a dissapprise. So I expect rather similar numbers, same levels for Germany, like the January number. But we will see. The market was hoping though that with the return of energy prices to lower levels, that inflation might actually come back faster than expected. This doesn't seem to be the case.

What is your expectation? It looks like that at least for the next month's inflation will stay on very high levels. I expect maybe for the second half that inflation might come down to certain extent, but still what we expect for this year for Germany is an average inflation rate of around 6 to 7%. So too high. That means for monetary policy that we have to do our job. I think the expectation for the March meeting is pretty clear. But this journey is not over with the March meeting. Yeah, we were saying early on that you're expecting significant rate rises also after March.

So is it just one significant or a couple of a sequence of rate rises which we have seen? So I guess speculation for the moment is coming beyond March. This is not helping. It looks like what I see now that the March numbers that I expect are still on a very high level. So I expect this 50 basis point hike for our March meeting. And it looks like that also for the upcoming meetings in May and after May, there's something on top to do. It is a journey. I do not know where is the total rate or the neutral rate.

I do not even know if we are really getting into this negative territory. It doesn't look like for the moment that we are already seeing the negative territory. So it is really something should be data dependent. I have to wait for the March projection. But one other tool you have on your hands is QT quantitative tightening. And you were suggesting that as a purchase or the shrinking of the balance sheet could actually be faster. So do you think you get a majority on the governing council? Now first of all, I think the shrinking of the balance sheet is very important.

So we already decided to do this monthly reduction of 15 billion. I think this is the first step. It's a complementary decision related to what we are doing on the interest rate side. I think I hope there is a majority because we have to do more. I think we have a large balance sheet. So the asset purchases, they brought us to a size of 5 billion of assets that we bought over the last couple of years. That's a long way to go to bring this balance sheet down.

So I believe 15 billion, yes, is okay for a monthly reduction. But in my interpretation, this is not enough. What do you think is needed to convince those who have a skeptical about a faster pace to shrink the balance sheet? I think first of all, there must be an understanding how the markets are react to this shrinking of the balance sheet. I believe that the markets, they can really live with that. And we will see this. And this is a good argument in a situation where inflation is so high, high interest rates. I think there's not too much to do to convince the colleagues in the governing council that we can do more.

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