German Interest Rates Hit 9-Year High of 7.5%

Germany’s central bank is raising interest rates to a nine-year high, determined to defend its currency and fight the threat of mounting inflation.

The Bundesbank’s discount lending rate will go up today to 7.5% from 6.5%, Bundesbank President Helmut Schlesinger said.

“The wave of price rises now rolling into Germany must ebb,” he told reporters in Frankfurt on Thursday after a meeting of the bank’s policy-making council. He urged unions and the government to help keep prices under control.

Germany’s economy, the largest in Europe, has been beset by inflationary pressures stemming from the huge outlays to rebuild the tattered economy in the east.

With concerns mounting that the cost of unification will be much greater than thought, fears have arisen about the health of Germany’s economy and put pressure on its currency.

The mark had been sinking against the dollar, making foreign goods more expensive in Germany and fueling inflation to a nine-year high.

“We cannot allow a mentality to develop where people expect prices to rise,” Schlesinger said.

Switzerland, Denmark, Belgium and the Netherlands all raised key rates after the German announcement.