European Central Bank Governing Council member Joachim Nagel stated that the ECB might need to address the economic challenges stemming from the conflict in the Middle East.
The Bundesbank president said in an interview on Tuesday, "This energy supply shock is more persistent, so we are deviating from the baseline scenario." He added, "This means we may have to take action."
When asked if this could imply raising borrowing costs at the June monetary policy meeting, Nagel indicated that he and his colleagues would decide based on data, but the risk of price pressures broadening is increasing.
"We see the probability of inflation intensifying across the board is rising," he said. "This is something we must consider, and we will do so at our next meeting."
The ECB has signaled it will consider interest rate hikes, as surging energy costs due to the war have pushed inflation further above its 2% target. However, some officials continue to urge caution, as rising oil and gas prices could dampen economic activity, thereby reducing the risk of secondary effects.
Investors and most economists expect the ECB to raise rates by 25 basis points next month, with traders pricing in a total of about three moves by 2026. The ECB's current deposit facility rate stands at 2%.
Outgoing Banque de France Governor François Villeroy de Galhau, speaking alongside Nagel, stated that he and his colleagues are "firmly determined to bring inflation back to target."
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