ECB official warns high oil prices may force more hikes

Austrian Central Bank Governor Martin Kocher warned Friday that if oil prices remain near $100 per barrel through the end of the year, the European Central Bank will have no choice but to raise interest rates again, days after the ECB delivered its second rate hike of 2026.news.futunn

The warning, first reported by the Financial Times, came after the ECB's Governing Council on Thursday raised all three key interest rates by 25 basis points at its September 9-10 meeting in Berlin, bringing the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending facility rate to 2.90%, effective September 16.global.morningstar+1

"Inflation risks have risen compared with a few months ago," Kocher said, pointing to ongoing Middle East tensions and persistently high energy prices. Since the collapse of the U.S.-Iran ceasefire agreement in early July, oil prices have surged more than 45%, breaking through $100 per barrel, while European natural gas prices have nearly doubled since June, approaching €80 per megawatt-hour.news.futunn

A Supply Shock Beyond the ECB's Control

Kocher acknowledged that the oil price surge represents a supply shock that monetary policy cannot resolve. "Monetary policy clearly cannot dictate oil prices," he said, adding that European consumers "will have to endure a certain degree of high inflation in the short term".news.futunn

Under the ECB's most adverse scenario, which assumes average crude oil prices of $99 per barrel and natural gas at €77 per megawatt-hour from October through December, inflation would rise to 3.2% next year — meaning the 2% target would be missed for a second consecutive year. ECB staff already project headline inflation to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028.cryptobriefing+2

Markets Brace for More Tightening

Investors have moved quickly to price in additional tightening. According to Reuters Thomson Reuters Corporation ↘ 3.79% data, markets expect another 25 basis point hike to 2.75% by year-end and at least one more increase in the first half of 2027. Morningstar reported that market pricing implies roughly a 75% probability of a rate increase at the ECB's next meeting on October 29, with similar odds for the December 17 meeting.global.morningstar+1

Kocher said it was "too early" to discuss the October meeting and cautioned that he was closely monitoring whether rising energy costs spread into broader wages and prices. "The period of high inflation must be brief," he said, stressing that inflation needs to return to target "within about a year".news.futunn