Nagel Says Further ECB Rate Hikes Highly Probable

Bundesbank President Joachim Nagel has signalled that the European Central Bank is likely to raise interest rates again, saying on Friday that it “seems highly probable that we’ll have to act again” if current conditions persist, Briefs Finance reported. Bloomberg also reported the remarks.

Nagel, who sits on the ECB’s Governing Council, said consumer prices remain under upward pressure and that each month of elevated inflation increases the risk of second-round effects, according to the report.

Nagel points to adverse scenario

The Bundesbank chief said the euro area was now approaching the adverse scenario set out in the ECB’s September projections, while noting that the economy had held up so far, Briefs reported. The September baseline had inflation staying above target well into 2027, and energy prices have since moved well above the path assumed in those projections, the report said.

The comments build on remarks Nagel made in Berlin earlier this month. ActionForex reported on November 4 that he said “an interest rate hike in December is very likely necessary” and that there seemed little alternative unless the inflation outlook improved significantly. At that time, he described the price surge as primarily energy-driven and said second-round effects remained limited, according to ActionForex.

The ECB held its deposit rate at 2.50% at its October meeting, ActionForex reported. Bulgarian central bank Governor Dimitar Radev was also quoted by the outlet as saying the inflation outlook had deteriorated since September.

Economists expect December hike

A Reuters poll of 71 economists, conducted November 10 to 12 and published on Investing.com, found most expect a final hike this cycle in December, taking the deposit rate to 2.75%. The ECB has already raised rates in June and September this year, Reuters said.

Of those polled, 46 expect rates to peak at 2.75% in December, while 25 see another increase, most likely in the first quarter of 2027. Financial markets are pricing in at least one more hike after December, the report said.

Euro zone inflation rose to a three-year high of 4% in October, with core inflation at 2.2%, according to Reuters. Economists in the poll now forecast headline inflation averaging 3.1% this year and 2.8% next year, up from earlier estimates, and growth of 1.1% this year and 1.3% in 2027.

Fabio Balboni, chief European economist at Wellington Management, told Reuters “the December hike is almost on autopilot”, putting the odds of a March move at 50/50.

What’s next

Reuters reported that oil futures have fallen more than 20% in recent weeks, though low natural gas storage is adding to inflation risks. Price growth is expected to remain around twice the ECB’s target until at least the second quarter of 2027, according to the poll. The ECB’s next policy decision is due in December.

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