ECB’s Makhlouf says bank must be ready to raise rates further

The European Central Bank must be prepared to raise interest rates further, including into restrictive territory, if inflation risks shift upward, ECB Governing Council member Gabriel Makhlouf said in an interview with the Financial Times News Corp ↘ 0.03% published Wednesday. The remarks come as eurozone consumer prices surged to a near three-year high, intensifying pressure on the central bank ahead of its September 10 policy meeting.rte+1

Inflation Driven by Energy Shock

Eurozone inflation accelerated to 3.3% in August from 2.9% in July, according to a flash estimate from Eurostat Euronext N.V. released Tuesday. The jump was driven largely by energy prices, which rose 14.3% year-on-year, up sharply from 10.3% in July. It marks the highest inflation reading since September 2023 and sits well above the ECB's 2% target.global.morningstar+3

Core inflation, which strips out energy, food, alcohol, and tobacco, edged down to 2.4% from 2.5% in July, while services inflation fell to 3.0% from 3.3%. The data suggests the energy price surge has not yet spread broadly into underlying prices, a distinction that carries weight in the ECB's policy calculus.euronews+1

Rate Hike Expected, but What Comes After?

Markets broadly expect the ECB to raise its deposit facility rate by 25 basis points to 2.50% at its September 10 meeting, the second hike since 2023. Makhlouf said next week's decision "would not be a surprise" and indicated the ECB may slightly raise its 2026 growth forecast.global.morningstar+3

However, he cautioned that even at 2.5%, monetary policy would still not be restrictive. "Policy is not restrictive," Makhlouf said, adding that restrictive territory would begin only once rates moved above 2.75%. He said the ECB should be ready to move into that zone if inflation risks escalate, though he stopped short of committing to consecutive hikes, backing the ECB's meeting-by-meeting approach.econostream-media+1

Uncertain Path Ahead

The ECB faces a complex policy environment. While headline inflation is elevated, its concentration in energy prices — tied in part to Middle East geopolitical tensions — raises questions about how aggressively to respond to what may prove a supply-side shock. Separately, ECB Governing Council member Olli Rehn warned of a prolonged "conflict of attrition" in the region that could keep inflation high.ft

For traders, the September hike itself is largely priced in; the more consequential question is whether the ECB views 2.5% as sufficient or sees a path toward 2.75%. That distinction will shape the EUR/USD trajectory in the months ahead.morningstar