ECB Governing Council member Joachim Nagel said the European Central Bank may need to raise borrowing costs to a level that starts to restrain economic activity in order to curb inflation. According to Sina Finance, he said energy price trends will be a key factor in determining the path of monetary policy after the ECB completed its second rate hike following higher crude oil and natural gas prices triggered by the Iran war.
Nagel said the ECB is currently at the upper end of the neutral-rate range and did not rule out the possibility of moving into a slightly restrictive range. He also said it is too early to speculate on the next policy move, echoing ECB President Christine Lagarde, who remained cautious after Thursday's policy decision.
Inflation is currently above 3%, and investors are betting the ECB will raise rates three more times in the coming months. According to Sina Finance, people familiar with the matter told Bloomberg that officials expect rates to keep rising, with another hike possible as early as October.
The ECB's latest forecasts released on Thursday showed inflation at 3% this year, easing to 2.5% in 2027 and 2.1% in 2028. The euro area's economy rebounded in the second quarter, and the full-year GDP growth forecast was raised to 0.9%.