ECB May Push Interest Rates into Restrictive Territory to Tame Inflation

The European Central Bank (ECB) may need to raise interest rates further to control inflation, according to Joachim Nagel, a member of the ECB's governing council. In an interview with CNBC, Nagel stated that the current interest rate level is at the upper bound of neutral territory and could potentially move into mildly restrictive territory.

Nagel cited energy costs as the main driver for future policy decisions. The ECB recently raised borrowing costs for the second time since the Iran war triggered a spike in oil and natural gas prices. Inflation projections indicate that it will remain above 3% this year, moderating to 2.5% by 2027 and 2.1% by 2028.

Investors are pricing in three additional rate hikes over the coming months, with some expecting the next increase as soon as October. Analysts from Goldman Sachs and UBS project another hike in December, while Danske Bank expects moves in both October and at the final meeting of the year.