ECB would need April hike if price outlook sours, Nagel says

Published Fri, Mar 20, 2026 · 04:00 PM

[BRUSSELS] The European Central Bank will need to consider hiking interest rates as soon as next month if price pressures build further due to the Iran war, according to Governing Council member Joachim Nagel.

“As things currently stand, it is conceivable that the medium-term inflation outlook could deteriorate and inflation expectations could rise on a sustained basis, meaning that a more restrictive monetary-policy stance would probably be necessary,” he told Bloomberg on Friday (Mar 20).

The Bundesbank president added that “more reliable data on this are already expected to be available by the next meeting of the ECB Governing Council in six weeks.”

He recalled the last spike in prices, fanned by Russia’s invasion of Ukraine in 2022, saying that experience “will play an important role in this context” – even if the ECB today “finds itself in a better starting position.”

The remarks show the level of alarm as soaring energy prices due to the conflict in the Middle East threaten to drive inflation higher while dragging down economic expansion.

While the ECB kept rates unchanged for a sixth meeting on Thursday, officials would be ready to raise borrowing costs on April 30 should the fallout from the war push inflation too far above target, people familiar with the situation said.

New ECB projections showed consumer prices will advance 2.6 per cent in the euro area this year – far more than previously thought. In an extreme scenario in which disruptions to oil and natural gas supplies persist until late 2026, inflation would peak at 6.3 per cent in the first quarter of 2027, it said.

President Christine Lagarde nevertheless insisted that she and her colleagues are “both well positioned and well equipped to deal with the development of a major shock that is unfolding.” They’re determined to stabilise inflation at 2 per cent, she said.

The ECB’s meeting took place just hours after the conflict in the Middle East escalated, with Iranian missiles damaging the world’s largest liquefied natural gas export plant in Qatar, inflicting damage that could take years to fix.

Such developments put policymakers in a tricky spot: They say they won’t allow a repeat of the record surge in inflation in 2022 and 2023 and pledge to act decisively. But costlier energy simultaneously risks derailing the region’s economic recovery. 

Nagel – who called Thursday’s decision “appropriate” – put the emphasis on prices and called the current situation “challenging.”

“The further development of the conflict will have a major impact on medium-term inflation,” he said, adding that the ECB’s future decisions will “depend on this.”

He stressed that ECB rate setters “will maintain a prudent monetary policy stance and act with the necessary resolve. Our primary mandate is price stability. Everyone benefits from this.” BLOOMBERG