ECB Governing Council member Nagel: The central bank is well positioned to respond to energy shocks; September interest rate decision will closely monitor data and the situation in the Middle East

According to Zhitong Finance APP, Joachim Nagel, a member of the European Central Bank’s Governing Council and President of the Bundesbank, stated on Friday that the ECB is currently in a favorable position to respond to challenges brought by surging energy prices. He emphasized that, before making a decision on whether to raise interest rates in September, it is essential to fully assess the substantial amount of economic data that will come in during this period.

Nagel’s remarks came as the ECB unanimously decided on Thursday to keep its three key interest rates unchanged, while also sending a strong signal that the likelihood of a rate hike in September is rising. Recently, international oil prices have returned to around $100 per barrel, and natural gas prices have also surged dramatically, once again pushing up energy cost pressures.

ECB President Lagarde revealed after the policy meeting that the option of a rate hike was indeed discussed, but they ultimately agreed unanimously to stand pat, partly because this round of soaring energy prices has not yet triggered a significant second-round inflationary effect.

In his statement, Nagel defended the decision to stay on hold, saying, “Keeping key interest rates stable this time was the right decision.” He pointed out that the rate hike in June has put the ECB in a favorable position, “allowing us to closely monitor subsequent developments.” However, he also warned that the situation in the Middle East remains highly volatile, and the central bank is still facing considerable uncertainty.

Currently, escalating tensions in the Middle East are making the ECB’s decision-making environment increasingly complex. As the US and Iran have broken off peace talks and resumed military strikes, the conflict further escalated this week, with Yemen’s Houthi forces launching attacks on Red Sea vessels and the situation around the Strait of Hormuz remaining unpredictable.

Lagarde has paved the way for action in September, stating that some officials were already inclined toward a rate hike this month. People familiar with the matter said that unless there is a clear improvement in the eurozone’s inflation outlook, policymakers are prepared to raise rates again at the next meeting.

Looking ahead to the next monetary policy meeting on September 10th, Nagel reiterated the ECB’s long-standing position of never pre-committing to any rate decision. He stated: “In September, we will have a lot of new data and new projections, at which time we will re-evaluate the inflation outlook.”