Joachim Nagel, a member of the European Central Bank's Governing Council and President of the German Bundesbank, stated that the probability of the ECB needing to raise borrowing costs is increasing due to the impact of the conflict involving Iran.
In an interview, the Bundesbank President noted, "I still hold a glimmer of hope for a significant de-escalation in the Middle East—but we cannot ignore high energy prices." He added, "Unless there is a fundamental change in the inflation outlook, interest rate hikes are becoming increasingly likely."
Economists are currently betting on two rate moves in 2026—in June and September—while markets anticipate a third before the year's end. Any action at next month's meeting will also coincide with new economic forecasts.
"We are no longer in the baseline scenario of the Eurosystem projections but are shifting towards an adverse scenario," Nagel said, referring to the different growth and inflation paths outlined by the ECB in March.
The German official further warned, "We may still face considerable inflationary pressures in the future."
Regarding the latest ECB inflation and growth forecasts, Nagel stated, "Price increases are likely not limited to fuel. Based on past experience, supply shocks often take about 18 months to ripple through all goods categories."
As one of the more hawkish members on the ECB's Governing Council, Nagel acknowledged that the weak eurozone economy could influence next month's decision.
He remarked, "No one likes raising interest rates when growth is under significant pressure. But our mandate is to maintain price stability. In the long run, it benefits everyone if we clearly signal that we take the inflation target seriously and keep medium-term inflation around 2%. We will fulfill our duty—no excuses."
On the topic of UniCredit's attempt to acquire Commerzbank, the Bundesbank President commented, "This is a private-sector decision between two banks, supported by their shareholders. As a central banker, I will not take a political stance on the matter. After all, the Bundesbank is also involved in banking supervision."
When addressing calls for common EU debt, Nagel stated, "I am merely following up on the ECB Governing Council's recommendation to European heads of state regarding joint financing. I explained under what conditions I consider European debt for specific purposes—which has existed since the 1970s—to be justified: for instance, for additional defense spending, and it must meet strict conditions, namely not endangering sound public finances and not exempting member states from budgetary discipline."
"For me, it is crucial that EU debt is not merely 'layered on top.' Instead, in return, national debt ceilings should be lowered. This means that, for clearly defined common tasks and under specific conditions, existing borrowing limits could be transferred to the EU level," he concluded.
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