Bundesbank chief says ECB may need to raise rates into restrictive territory

Bundesbank President Joachim Nagel said on Tuesday that European Central Bank interest rates remain in neutral territory but that a move into mildly restrictive levels cannot be excluded if elevated energy prices continue to push inflation above target.

"I cannot exclude that if we are confronted with higher energy prices like this, that we have to go into the mild restrictive territory of monetary policy," Nagel told an event hosted by London's Society of Professional Economists on September 22. The ECB's key interest rate stands at 2.5%, a level Nagel described as neither restraining nor stimulating economic growth.bloomberg+2

Oil Takes Center Stage in ECB Calculus

Nagel placed energy prices firmly at the heart of the policy debate, saying oil had become "a more relevant indicator over the last four years" for the Governing Council. He stressed that policymakers must factor energy costs into their decisions, though he noted oil was far from the only variable under consideration.investinglive+1

On broader inflation dynamics, Nagel said he had not yet seen second-round effects, the process by which an initial energy shock feeds into wages and wider prices. But he cautioned that core inflation remained too high and that policymakers were "vigilant". He added that he was not especially concerned about labour market developments, noting conditions were considerably softer than during the 2022 wage-price spiral.nationthailand+2

Lane Sees Inflation Elevated Into 2027

Separately on Tuesday, ECB Chief Economist Philip Lane warned that a second wave of energy price increases would keep inflation higher for longer. In an interview with Swiss daily Le Temps, Lane projected that eurozone inflation would not return to the 2% target until around the middle of next year. Eurozone consumer price inflation reached 3.2% last month, the highest level in roughly three years.news.sbs

The ECB raised its three key policy rates by 25 basis points on September 10, and markets are pricing in three to four additional hikes over the coming year. ECB President Christine Lagarde and Vice-President Boris Vujčić have pushed back against those expectations, arguing that rates do not move in lockstep with oil prices, in remarks that suggest the ECB may wait until December before acting again.nationthailand

Energy Shock and Geopolitical Uncertainty

The hawkish signals come against a backdrop of sustained energy disruption tied to the Middle East conflict. Brent crude settled at $99.25 a barrel on Tuesday after Saudi Arabia restarted its East-West pipeline and crude shipments through the Strait of Hormuz increased. Diesel prices have reached record highs in Europe as wars in Iran and Ukraine have reduced exports from major producers.nationthailand

Nagel described the ECB's communication approach as sitting between "constructive ambiguity" and explicit forward guidance, and said he saw little market uncertainty about what drives the council's decisions.fxstreet+1