Joachim Nagel, president of Germany’s Deutsche Bundesbank and a member of the European Central Bank’s Governing Council, said in a speech in Berlin on the 3rd that another interest rate hike at the December Governing Council meeting is almost unavoidable. If realized, it would be the third rate increase this year. Several policymakers have already voiced support for tightening in December, and Nagel has now joined their ranks.
“As things stand today, a December rate hike is highly likely. Unless the inflation outlook improves substantially, there appears to be little alternative to raising rates,” the Bundesbank president said. He noted that the baseline consumer price forecast as of September already assumed an additional rate hike, and that conditions have since deteriorated. The ECB plans to publish new economic projections extending through 2029 at next month’s meeting, and Nagel said “the decision will be based on these projections.”
At last week’s Governing Council meeting, the ECB left its key policy rate—the Deposit Facility Rate—unchanged at 2.5%. The decision rested on the premise that rapid inflation has not become entrenched, but officials have repeatedly said the pause will be only temporary. Governing Council member Dimitar Radev of Bulgaria said last week’s hold does not mean the hiking cycle is over. Slovakia’s Peter Kazimir also said last week’s decision was “not the finish line.”
Eurozone inflation is expected to reach 4% year-on-year in the flash estimate Eurostat will publish on the 5th, double the ECB’s 2% target. The core index, which excludes volatile items such as energy, is projected to have stayed at 2.5%.
Nagel cited the absence so far of confirmed second-round effects as one reason for last week’s decision to hold. However, he warned that rising energy prices “could gradually feed through into wage demands,” adding that “if that happens, it will push prices up further.” While the recent acceleration in inflation is mainly due to energy prices that the ECB cannot control, he also indicated that the central bank remains “quite far” from fulfilling its price stability mandate.
Financial markets have not fully priced in a December hike, but investors anticipate two to three rate increases over the next year, reflecting the view that inflation will remain above the 2% target for years to come. Some economists expect next month’s move to be the last hike, while investors see tightening continuing into 2027.
The remarks reaffirm that the ECB’s policy stance remains on a tightening path. Eurozone government bond yields and the euro exchange rate could react in the run-up to the December meeting. The focus for subsequent policy decisions will be energy price trends and whether they spill over into wages.