Key facts
- Nagel said there is little alternative to a December hike unless the inflation outlook improves significantly.
- Radev said the October pause was a decision to assess evidence, not a conclusion that tightening is over.
- The ECB sees inflation above 4% in the coming months, more than twice its 2% target.
- Nagel said the inflation surge was primarily due to energy and there was little evidence of second-round effects.
- Investors see between two and three rate hikes over the coming year, though a December move is not fully priced in.
Bundesbank President Joachim Nagel said on November 3 that another European Central Bank rate hike in December seems almost inevitable, joining a long list of policymakers backing a move that would be the bank's third in 2026.
"From today's perspective, an interest rate hike in December is very likely necessary," Nagel, a voice on the ECB's Governing Council, said in a speech in Berlin. "There seems to be little alternative to an interest rate hike unless the inflation outlook improves significantly."
The ECB left its key deposit rate on hold at 2.5% the previous week on the premise that rapid inflation is not getting embedded, but policymakers from different backgrounds have argued the pause was likely temporary.
Bulgarian central bank chief Dimitar Radev, speaking earlier in the day in Sofia, reached a similar conclusion. "The inflation outlook has deteriorated since September, and this must be reflected in our assessment of the appropriate monetary policy stance," he said, adding that the October pause was a decision to assess the evidence, not a conclusion that tightening is over.
The ECB sees inflation above 4% in the coming months, more than twice its target, falling back rapidly from early spring when high year-earlier figures drop out of the time series. Nagel argued inflation was approaching the ECB's adverse scenario and price pressures would be higher than outlined in the bank's September projections.
Nagel also acknowledged that the inflation surge was primarily due to energy, over which the ECB has no control, and that there was little evidence the increase was setting off second-round effects. While a December move is not fully priced in, financial investors see between two and three rate hikes over the coming year, expecting inflation to hold above the 2% target for years.