ECB policymakers open door to more rate hikes on energy risk

Two European Central Bank officials have suggested the possibility of additional interest rate hikes if escalating energy costs persist and drive up prices across the euro zone. The European Central Bank (ECB) recently raised borrowing costs for the second time this year, and sources reveal policymakers foresee further tightening in the coming months, potentially as early as October.

German Bundesbank President Joachim Nagel and Estonian central bank governor Ülo Kaasik both commented on the potential for a rate increase, albeit contingent on the trajectory of oil and gas prices. Nagel indicated that the ECB might need to moderate its stance to a level that mildly constrains economic activity, but emphasized that this decision would be closely tied to developments in energy prices over the next month.

Estonia's central bank governor shared that expectations of further ECB rate hikes are understandable given the recent surge in fuel prices and the risk of soaring food costs. Similarly, Slovenia’s central bank governor Primož Dolenc warned of rising energy and electricity expenses in the autumn and winter months. However, the ECB's own projections for growth and inflation, while slightly adjusted, failed to account for the latest energy price fluctuations.