ECB Warns of Further Rate Hikes as Energy Prices Continue to Rise

European Central Bank (ECB) policymakers have hinted at further interest rate hikes if energy prices continue to rise, fueled by the ongoing war. Bundesbank President Joachim Nagel acknowledged that the ECB might need to raise rates to a level that mildly curbs the economy.

Nagel stated that 'I will not exclude that we have to go into the mild restrictive territory,' but emphasized that any decision would depend on how energy prices evolve. The ECB raised its key rate from 2.25% to 2.50%, bringing it to the upper end of its estimated neutral range.

Money markets are pricing in at least three more ECB rate hikes over the next year, and Ülo Kaasik, Estonia's central bank governor, said such expectations were 'understandable' given the latest increase in fuel prices. Slovenia's central bank governor Primož Dolenc also warned about 'rising energy and electricity costs in the autumn and winter months.'