Governing Council member Joachim Nagel said it is conceivable the European Central Bank could raise interest rates at its April 30 meeting if energy-driven inflation continues to worsen and inflation expectations rise on a sustained basis. Nagel, who is president of the Bundesbank, made the remarks in comments to Bloomberg reported on Friday.
"As things currently stand, it is conceivable that the medium-term inflation outlook could deteriorate and inflation expectations could rise on a sustained basis, meaning that a more restrictive monetary-policy stance would probably be necessary," Nagel said, according to the report.
People familiar with the situation told Bloomberg that officials would be prepared to increase borrowing costs on April 30 should fallout from the Middle East conflict push inflation materially above the ECB's 2% target.
The comments arrived a day after the ECB left its policy rate unchanged at 2% for a sixth straight meeting even as its new staff projections showed consumer prices in the euro area rising 2.6% this year. The projections also included an extreme scenario in which prolonged disruptions to oil and natural gas supplies lasting until late 2026 would send inflation to a peak of 6.3% in the first quarter of 2027.
ECB officials met on Thursday mere hours after Iranian missiles struck the world's largest liquefied natural gas export facility in Qatar, producing damage that Bloomberg said could require years to repair. That development factored into the heightened concern about energy-driven upside risks to inflation.
Market and bank analysis has shifted to reflect a riskier conflict trajectory. J.P. Morgan, in a research note on Thursday, said markets have moved toward pricing a "Prolonged Conflict" scenario. Under that scenario the overnight euro short-term rate, captured by the €STR curve, would incorporate about 75 basis points of cumulative hikes by the end of 2026. At the time of the note the €STR curve was pricing roughly 65 basis points of cumulative moves by December 2026, the bank said.
Nagel drew a direct parallel with the inflation spike seen in 2022 after Russia's invasion of Ukraine, noting that the experience will play an important role in the current context even if "the ECB today finds itself in a better starting position," according to the report.
ECB President Christine Lagarde, speaking after the decision to hold rates, said policymakers are "both well positioned and well equipped to deal with the development of a major shock that is unfolding." Nagel described the decision to pause as "appropriate" and said future policy moves will depend on how the conflict evolves.
Throughout the commentary Nagel emphasized that maintaining price stability is the central bank's primary mandate and that rate setters will preserve a prudent stance and act with necessary resolve. He repeated that decisions will hinge on incoming data and developments linked to the conflict, reflecting an openness to tighten policy if geopolitical events meaningfully raise inflation risks.
Context and implications
The combination of fresh staff inflation projections, damage to energy export infrastructure, and market repricing toward a prolonged-conflict scenario has put possible additional tightening back on the table for the ECB. Officials signaled readiness to move at the April 30 meeting if energy-related disruptions translate into a persistent deterioration in the medium-term inflation outlook and a sustained rise in inflation expectations.