FRANKFURT, June 12 - The European Central Bank will hold all policy options open ahead of its July meeting and is prepared to take further steps if an energy-price shock tied to the war in the Middle East spreads, Bundesbank President Joachim Nagel said on Friday.
Nagel, speaking in a statement, framed Thursday’s decision to raise interest rates as a necessary response after inflation climbed beyond 3% and underlying price growth - which excludes energy swings - rose well above the ECB’s 2% target. He said the move made the ECB the first major central bank to tighten policy in reaction to the recent jump in oil prices.
"The Governing Council will be gathering for its next monetary policy meeting in July," Nagel said. "We are keeping all our options open and are ready to respond once again, should we have to."
He described the supply shock linked to the conflict in the Middle East as "strong and persistent," and said that was why the central bank could not simply "look through" the disruption. The Bundesbank president added that the inflationary impulse had begun to spread beyond energy and into other areas of the economy, affecting the prices of a wider set of goods and services.
Nagel also noted that the Governing Council had shown determination with its recent action, a stance he said helps prevent inflation expectations from becoming unanchored.
Sources close to the policy discussion had earlier told Reuters that a rate rise in July was not the policymakers’ baseline expectation. Nevertheless, those sources said the council could still raise rates in July if energy prices continued to climb or if the ECB were confronted with another negative inflation surprise.
Nagel is a potential candidate to succeed ECB President Christine Lagarde next year, a context he did not expand on in his statement.
Context and implications
The comments underline the ECB’s readiness to respond to developments in energy markets and the broader inflation outlook. By signalling that options remain open for July, the council aims to retain flexibility to tighten policy further if the supply-driven shock proves persistent and spreads into core inflation measures.