European Central Bank may hike rates to 2.75% if energy prices stay above $110

European Central Bank policymaker Joachim Nagel told CNBC Friday that future interest rate decisions hinge on how energy prices behave over the coming months. The ECB raised its key benchmark rate by a quarter percentage point to 2.5% earlier this week, though Nagel indicated potential for additional tightening into what he called mild restrictive territory if fuel costs remain elevated. He described the current setting as being at the upper end of neutral range, where policy neither stimulates nor restricts growth aggressively. Global oil benchmarks, including U.S. WTI and Brent crude, have traded above $100 a barrel recently, with some estimates suggesting prices could approach $110 per barrel. European natural gas futures in the Netherlands are also at their highest level since 2022. Nagel emphasized that predicting whether one or two more rate increases occur is too early because the trajectory of energy costs over weeks and months remains unclear. He noted significant volatility has been seen over the past month, which influenced yesterday's policy move. Persistent high fuel costs linked to ongoing geopolitical conflicts pose risks to both inflation control and economic expansion by squeezing household purchasing power. The central bank's next possible meeting is scheduled for October.