Nagel keeps ECB hikes open as inflation confirmed at 3.8%

Bundesbank President Joachim Nagel said on Friday, October 16, that further interest rate hikes remain possible. He spoke on the same day Eurostat confirmed that eurozone inflation reached 3.8% in September. That is up from 3.2% in August and the highest rate since September 2023. Nagel and other European Central Bank policymakers are now debating how soon to tighten policy again. Their next meeting ends with a decision on October 29.finance.yahoo.com+1

Officials keep options open

Nagel spoke in Bangkok on the sidelines of the International Monetary Fund's annual meeting. He said the ECB's Governing Council would do whatever is necessary to bring inflation back to its 2% medium-term target. He noted that the bank has already raised rates twice and said more hikes could be needed if conditions stay the same. He also backed the ECB's practice of deciding rates meeting by meeting, given how volatile markets are.finance.yahoo.com

Earlier in the week, Lithuanian central bank chief Gediminas Šimkus said the ECB may need to raise rates again. He pointed to an inflation reading above estimates, energy costs higher than forecast and a labor market that remains fairly strong. He said December would give policymakers more information than October, but did not rule out a move this month.bloomberg.com+1

ECB President Christine Lagarde sounded more cautious. "We're not seeing any second-round effects yet," she said, but added: "We cannot wait until they are in full view". Finnish central bank governor Olli Rehn said on Friday that the extra information available in December supports a "measured" approach.econostream-media.com+1

Energy drives the surge

Energy inflation jumped to 18.8% in September from 14.3% in August, amid the war in the Middle East. Core inflation edged up to 2.5% from 2.4%. Inflation rose to 5% in Spain, 4.2% in Italy, 3.4% in France and 3.3% in Germany.france24.com+1

The ECB raised its key rates by 25 basis points in June and again on September 10, which took the deposit rate to 2.50%.euronews.com

Markets eye December

Traders expect another ECB hike in December. Measures of the odds differ. Derivatives pricing cited by Morningstar implied about an 11.7% chance of an October hike and close to 70% for December. ABN Amro expects two more hikes, which would take the deposit rate to 3%. It also projects that inflation will rise above 4% by year-end.fxstreet.com+2

The euro edged higher against the dollar on Friday, with EUR/USD rising in Asian trading. Political uncertainty in France held back the gains.fxstreet.com