The European Central Bank may need to raise interest rates further and move into territory that begins to restrain the economy if energy prices remain elevated by the war in the Middle East, ECB policymaker Joachim Nagel has said.
The ECB raised its three key rates by 0.25 percentage points on Thursday, taking its main rate to 2.50% and marking the second increase this year. Policymakers are expected to consider further tightening in the months ahead, with a move possible as early as October.
Nagel, who is also president of Germany’s Bundesbank, said the ECB’s key rate was now at the upper end of the neutral range — the level considered neither to stimulate nor slow economic activity.
“I will not exclude that we have to go into the mild restrictive territory,” he told CNBC, adding that the decision would depend heavily on how energy costs and broader price pressures developed over the coming month.
The ECB has warned that the Middle East conflict is continuing to fuel inflationary pressures. Its latest projections put average euro-area inflation at 3% in 2026, 2.5% in 2027 and 2.1% in 2028, remaining above the bank’s 2% target for an extended period.
While the central bank expects the euro-area economy to remain resilient, it said the outlook was highly uncertain and that its decisions would continue to be guided by incoming data, underlying inflation and the impact of previous rate changes.
