Oil Prices Grow Key in ECB Rate Decisions

Oil prices are playing an increasingly important role in ECB policymakers' decisions on interest rates, according to Bundesbank President Joachim Nagel. Speaking after markets raised rate-hike bets due to expensive energy, Nagel emphasized that oil prices have become a more relevant indicator over the past four years.

Nagel said that the ECB governing council has to consider oil prices when making decisions and that rates are in a neutral territory of 2.5%. However, he kept open the door for further rate hikes if energy prices remain high.

The Bundesbank chief played down concerns about second-round inflation effects, arguing that the labor market is softer than in 2022, which saw an energy-price-led inflation fuel increasing wage demands and a wage-price spiral.