ECB’s Nagel Refuses to Rule Out July Hike as Middle East Shock Persists

German Bundesbank President Joachim Nagel signaled that another ECB rate hike in July remains possible, emphasizing that policymakers are keeping “all options open” as they assess the inflationary impact of the Middle East conflict. Just one day after ECB raised rates by 25 basis points, Nagel stressed that the Governing Council stands “ready to respond once again, should we have to.” While sources familiar with the discussions indicated that a July hike is not currently the base case, Nagel’s comments made clear that further tightening remains on the table if inflation pressures intensify.

Nagel argued that “the supply shock triggered by the war in the Middle East is proving to be strong and persistent”. More importantly, he warned that inflation is no longer confined to energy markets. Thursday’s rate hike was necessary because price pressures are increasingly spreading into other areas of the economy, with higher energy costs feeding into broader goods and services inflation. “That is why we cannot simply ‘look through’ it,” Nagel added.

Nagel argued that the Governing Council’s actions demonstrate determination and help prevent inflation expectations from “becoming unanchored.” For markets, the message is straightforward: while a July hike is not the ECB’s central scenario, further tightening remains a live possibility if oil prices rise again or inflation delivers another upside surprise.