Joachim Nagel told CNBC the ECB may have to take policy beyond neutral, into levels that start to crimp activity, to get price pressures under control. "We are in the upper bound of the neutral territory," he said, adding, "I will not exclude that we have to go in the mild restrictive territory." He flagged energy costs as the main driver for what happens next on policy. Pressed on the immediate path for rates, he said it is "too early to speculate on this," echoing President Christine Lagarde's guarded tone after the latest decision.
Nagel spoke a day after the ECB increased borrowing costs for the second occasion since the Iran war triggered a spike in oil and natural gas prices. The central bank also rolled out new projections: inflation is seen at 3% this year, then moderating to 2.5% for 2027 and 2.1% in 2028. After a strong second quarter, growth for the 21 nation region was marked up to 0.9% for the full year.
With inflation still above 3% and the euro area handling Middle East fallout relatively well, investors are now pricing in three additional hikes over the coming months. People familiar with internal discussions told Bloomberg that officials anticipate more increases, with the next one possibly as soon as October.
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Estonia's Ulo Kaasik said he understands why markets see more tightening ahead. "It's true the markets are expecting the interest-rate hiking cycle to continue, and looking at the current developments it's understandable why the markets think that," he told Aripaev. "I would certainly not consider the current level very high yet." Analysts are increasingly leaning that way too: Goldman Sachs and UBS both project another increase in December, and Danske Bank expects moves in October and at the final meeting of the year, which would take the deposit rate to 3%. For everyday investors, that points to a backdrop where borrowing stays pricier and energy remains a swing factor, which can ripple into mortgages, savings yields, and the parts of your portfolio that feel rate pressure first.
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