Bundesbank chief says ECB may need to hike beyond neutral range

Bundesbank President Joachim Nagel said on Friday that the European Central Bank may need to push interest rates beyond the neutral range into "mildly restrictive territory" if war-driven energy prices continue to climb, underscoring how volatile oil and gas markets are now steering the course of eurozone monetary policy.

"I will not exclude that we have to go into the mild restrictive territory, but as I said, it's very much dependent on how the energy prices evolve, how the price picture is evolving over the course of maybe the next month," Nagel told CNBC's Annette Weisbach in an interview on Friday.cnbc+1

The remarks came a day after the ECB raised its key interest rate by 25 basis points to 2.5%, the second hike this year, as the Iran war continues to push energy costs higher. Policymakers expect further tightening in the months ahead, with a move possible as early as October, two sources told Reuters.reuters+1

Energy Prices at the Wheel

Nagel said the current rate now sits at the upper end of what the ECB considers neutral territory — a level that neither stimulates nor restrains economic growth. But he stressed the outlook remains fluid. "It is not clear what the energy prices are doing over the next weeks and months," he told CNBC, adding that crude oil is now near $110 per barrel.cnbc

Brent crude and U.S. WTI were both trading above $100 a barrel on Friday morning, while Dutch TTF natural gas futures hit their highest level since 2022. Asked whether one or two more hikes remained in the current cycle, Nagel said it was "too early to speculate".ua+2

October Decision Looms

ECB President Christine Lagarde said on Thursday that the neutral rate is a theoretical concept and left the door open to raising rates above that level, even at the risk of cooling the European economy. Reuters sources indicated that policymakers could debate another hike as soon as their October meeting.democrata+2

Nagel, who sits at the hawkish end of the Governing Council, also sought to temper concerns about Europe's relatively low gas storage levels heading into winter. He said the situation was "not comparable" to the 2022–2023 energy crisis, citing greater access to liquefied natural gas terminals. Still, he warned that inflation risks have "clearly increased" and that Europe must closely monitor gas costs as the cold season approaches.cnbc+1