ECB policymakers open door to more rate hikes on energy risk - AOL

By Francesco Canepa and Balazs Koranyi

Updated Fri, September 11, 2026 at 3:39 AM EDT

FRANKFURT, Sept 11 (Reuters) - Two European Central Bank policymakers opened the door on Friday to further interest rate increases if a war-fuelled rise in energy prices continues and pushes up other prices in the euro zone.

The ECB raised borrowing costs on Thursday for the second time this year and sources told Reuters policymakers expect further policy tightening in the months ahead, with a move possible as early as October.

The central bankers of Germany and Estonia acknowledged this prospect on Friday although they both stressed any move would depend on how oil and gas prices develop.

Bundesbank President Joachim Nagel said the ECB might need to raise rates to a level that mildly curbs the economy.

"I will not exclude that we have to go into the mild restrictive territory, but as I said, it's very much dependent on how the energy prices evolve, how the price picture is evolving over the course of maybe the next month," he told CNBC in an interview.

The euro zone central bank increased its key rate from 2.25% to 2.50%, bringing it to the upper end of its estimated neutral range, which neither stimulates nor slows down the economy.

Money markets have started pricing in at least another three ECB rate hikes over the next year.

Ülo Kaasik, Estonia's central bank governor, said such expectations were "understandable" given the latest increase in fuel prices and the risk that food would also become more expensive.

"Recent developments in energy markets, for example, indicate the possibility that the price increase for gas and fuels will be much larger and last longer than expected in the forecast," he said in a blog post.

Slovenia's central bank governor Primož Dolenc also warned in a blog post about "rising energy and electricity costs in the autumn and winter months".

The ECB on Thursday slightly increased its projections for growth and inflation but these did not capture the latest energy price moves.

(Reporting by Francesco Canepa; Editing by Sharon Singleton and Toby Chopra)

LONDON, Sept 10 (Reuters) - The European Central Bank raised interest rates for the second time this year in a widely flagged move on Thursday, hoping to tame an inflation rise driven entirely by higher energy costs from the Iran war.

The euro weakened 0.3% to around $1.159, and euro zone government bond yields edged up to fresh multi-year highs after the decision. In addition, the oil price surged by more than 4% to $105.3 a barrel, adding to investor concern about a more sustained pickup in inflation.

The rate-sensitive two-year German bond yield was at around 3.072%, holding near more than two-year highs hit earlier in the session, up from 3.058% prior to the ECB decision.

The broad European STOXX 600 index was last down 0.7%.

COMMENTS:

MARK WALL CHIEF EUROPEAN ECONOMIST AT DEUTSCHE BANK, LONDON:
"The inflation risks may be rising and a further hike in December may be more likely than not, but the ECB still needs to tread carefully. The economy has been resilient over the last six months, but rapidly rising gas prices mean the negative supply shock is building. It will eventually hurt growth. The question is how much and when."

DAVID REES, HEAD OF GLOBAL ECONOMICS, SCHRODERS:
"Higher energy prices will keep headline inflation up, but core inflation remains well behaved so far. Domestic demand is softening, and higher energy costs alongside tighter financial conditions are likely to weigh on eurozone growth, particularly in 2027."

"Despite the hawkish tone of today's statement and forecasts, we believe the bar for further tightening is high. This looks more like a final hike than the start of a prolonged hiking cycle, so markets should not assume rates will move towards 3% unless growth and inflation re-accelerate materially."

RICHARD CARTER, HEAD OF FIXED INTEREST RESEARCH, QUILTER CHEVIOT:
"The ECB's balancing act is becoming increasingly difficult. Growth across parts of the eurozone remains fragile and there is a fine balance between keeping inflation under control and weighing further on economic activity. While we are not yet at the point where stagflation is the base case, the combination of weaker growth and renewed inflationary pressure is becoming harder for policymakers to ignore."

MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS:
"As expected, the ECB raises interest rates for the second time in three months, and signals that more policy tightening will likely be required in the coming meetings."

"Although no pre-commitment is made, the new quarterly forecasts show core inflation at 2.3% in 2028. This is higher than the 2.2% projection which was made in June, which indicates that more rate hikes will be needed to get inflation to the 2% target in the medium term."

ED HUTCHINGS, HEAD OF RATES, AVIVA INVESTORS:
"Overall, the immediate priority for the ECB is clear: address the inflationary backdrop, and, as such, the market is right in thinking more hikes will be coming. However, with two hikes already being delivered and more than a further two hikes priced, things may well have gone too far."

PATRICK ERNST, MACRO INVESTMENT STRATEGIST, JPMORGAN PRIVATE BANK:
"Another hike before year-end is no longer a tail risk. Driven by the latest Middle East conflict escalation, oil and gas prices have moved materially higher, bonds have sold off, and expectations for further central bank tightening have firmed. The ECB moved as anticipated, but what accompanied that rate decision matters more."

"In keeping the door open to further tightening, policymakers made clear that an energy-led inflation risk is still very much in play. One hike is not a ceiling. The odds of another before year-end have risen, and the path from here will depend considerably on how the geopolitical picture develops."

CONOR PARLE, EURO ZONE ECONOMIST, FIDELITY INTERNATIONAL:
"Higher gas and fuel prices will keep the ECB vigilant to a broadening of price pressures, with the recent heatwave and accompanying supply chain impacts likely to increase food inflation. Further to this, the Indeed wage tracker points to a slight pick-up in wage growth that will be monitored for early evidence of second round effects."

SYLVAIN BROYER, CHIEF EMEA ECONOMIST, S&P GLOBAL RATINGS:
"This rate hike is not just an insurance move. The inflation outlook has worsened over the summer. Supply shocks are not only multiplying, but it is increasingly likely that demand is also adding to inflation. In that context, the ECB may need to move into restrictive territory and cannot rule out further rate hikes at this stage."

(Reporting by the Reuters Markets Team; Compiled by Dhara Ranasinghe; editing by Amanda Cooper)

FRANKFURT, Sept 10 (Reuters) - The European Central Bank raised interest rates for the second time this year in a widely flagged move on Thursday, hoping to tame an inflation rise driven entirely by higher energy costs from the Iran war.

Surging oil and natural gas prices pushed inflation well past 3% across the 21-country euro zone last month, far exceeding the ECB's 2% target, and a recent escalation of the conflict points to further price pressures that could eventually seep into wage-setting.

"The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth," the ECB said in a statement after meeting in Berlin, continuing its long tradition of holding one policy meeting a year in a different euro zone city.

The ECB also lifted its 2026 economic growth projection to 0.9% from 0.8% seen in June and now sees inflation averaging 3.0% this year and 2.5% in 2027.

Thursday's hike raises the ECB's benchmark deposit rate to 2.5%, the upper end of the "neutral" range considered by policymakers to neither restrict nor stimulate economic growth.

While financial investors are betting on further hikes later this year and in 2027, the ECB is likely to take its time with any follow-up move given a mixed outlook.

High energy costs suggest persistent inflation, and all hopes are gone for a quick end to the U.S.-Israeli war on Iran, which began in late February. High natural gas prices are a growing worry, too, with gas storage levels below historic norms as the winter heating season approaches.

Economic growth is meanwhile holding up much better than feared, indicating a resilience that could also put upward pressure on prices.

High energy costs have yet to filter down into the price of other goods and services, however, confounding fears that second round effects would be quickly visible.

Underlying inflation, which filters out volatile food and fuel prices, even slowed last month on moderating services inflation, while growth in wages, a crucial indicator to gauge price pressures, keeps slowing.

Bond yields have also increased sharply, mostly reflecting similar rises for U.S. Treasuries, tightening financing conditions and doing some of the central bank's work for it.

These factors suggest that even if price pressures persist, they are far less than in 2022, when inflation shot past 10% as energy prices spiked following Russia's invasion of Ukraine.

Attention now turns to ECB President Christine Lagarde's 1245 GMT press conference.

(Reporting by Balazs Koranyi; Editing by Catherine Evans)

FRANKFURT, Sept 10 (Reuters) - The European Central Bank raised its policy rate on Thursday for the second time this year, by a quarter point to 2.50%, seeking to quell an energy-driven rise in inflation triggered by the Iran war.

Following are highlights of ECB President Christine Lagarde's comments at a press conference after the policy meeting.

GAS PRICE RISKS
"Gas prices, in particular, could increase in the event of further supply disruptions or an unusually cold winter coinciding with low storage levels."

RISKS FROM TRADE TENSIONS
"Renewed trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials, and worsen capacity constraints in the euro area economy."

CLIMATE CHANGE MAY DRIVE UP FOOD PRICES
"Extreme weather events, potentially reinforced by intensifying El Nino conditions and the unfolding climate and nature crisis more broadly, could drive up food prices by more than expected."

UPSIDE INFLATION RISKS
"The risks to the inflation outlook are to the upside. This is due in particular to the Middle East conflict and developments in Russia's unjustified war against Ukraine.
The energy shock could intensify further, and its effect on other prices and wages could be stronger than currently expected."

BOND MARKETS, TRADE TENSIONS
"A worsening of global financial market sentiment or spillovers in global bond markets could tighten credit conditions and thereby dampen demand.
A resurgence of trade tensions between major economies could also further disrupt supply chains, reduce exports, and weaken consumption and investment."

DOWNSIDE GROWTH RISKS
"The risks to the growth outlook are to the downside.
This is due in particular to the Middle East conflict and developments in Russia's unjustified war against Ukraine.
Renewed disruption of energy supplies could cause energy prices to rise further and for longer than currently expected. This would weigh on real incomes, spending, and investment."

HEADLINE INFLATION
"Overall, headline inflation is expected to return to a round target towards the end of 2027, supported by the effects of higher interest rates."

ON EXPECTED INFLATION
"Inflation expectations over shorter horizons remain at elevated levels. But most measures of longer-term inflation expectations stand at around 2%, supporting the stabilisation of inflation around target in the medium term."

MODERATE UPTICK IN WAGES AHEAD
"The ECB's wage tracker points to a modest uptick to 2.7% in negotiated wage growth in the first half of 2027."

UNDERLYING INFLATION
"Most measures of underlying inflation were broadly stable in July. Wages do not show a material response to the energy shock at this stage."

REFINING MARGINS, COMMODITY PRICES
"(The energy inflation) increase is likely to reflect, in particular, a strong contribution from refining margins on liquid fuels, as well as higher energy commodity prices."

NEAR-TERM GROWTH OUTLOOK
"Looking ahead, the near-term growth outlook has improved compared with the last round of staff projections, reflecting in particular the resilience of private consumption and public spending."

RESILIENT ECONOMY
"The economy proved resilient in the second quarter, despite headwinds from the energy shock. Growth was broad-based across countries and sectors. This pattern is likely to have continued into the third quarter."

INFLATION PRESSURES
"The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period."

ON THE ECONOMIC OUTLOOK
"The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth."

(Reporting by Reuters Global News Desk)