Germany’s central bank president, Joachim Nagel, stated that the European Central Bank’s future monetary policy decisions are heavily contingent on the trajectory of energy costs. Speaking to CNBC on Friday, Nagel emphasized that developments in energy markets over the coming month will be a critical factor in determining whether additional rate increases are necessary.
The comments follow the ECB’s decision on Thursday to raise its key interest rate by 25 basis points to 2.5%. Nagel described the current rate as sitting at the upper end of neutral territory—a range where monetary policy neither stimulates nor restricts economic growth—but acknowledged the possibility of moving into “mild restrictive territory” if conditions warrant.
Energy markets are currently experiencing significant pressure. Global benchmarks for Brent crude and U.S. West Texas Intermediate (WTI) oil are trading above $100 per barrel, while European natural gas prices, measured by Dutch TTF futures, have reached their highest levels since 2022.
When asked if one or two more rate hikes were on the table for this cycle, Nagel cautioned against speculation. He noted that energy prices rose sharply last week, with crude oil approaching $110 per barrel, and pointed to the volatility observed over the past month. The recent rate hike, he explained, was a reflection of the ECB’s existing forecasts.
“It is not clear what the energy prices are doing over the next weeks and months, so I think it is dependent on the energy price development,” Nagel said, adding that he would reassess the outlook during the next governing council meeting.
Despite concerns regarding lower-than-average European gas storage levels heading into the winter season, Nagel expressed confidence that the region is well-prepared. He highlighted that access to liquefied natural gas (LNG) options has improved significantly compared to the energy crisis of 2022-2023, reducing the risk of a similar supply shock.
Interesting that he downplays the supply shock risk while oil keeps climbing. Feels like wishful thinking to me.
Nagel is right to be cautious, but waiting until the next meeting seems slow given how fast markets move right now.
$110 a barrel is painful. I worry more hikes will crush an economy already on its knees. Will it ever end?
Finally, someone admits energy prices are the real inflation driver here. Good to hear storage levels are under control for winter.