Nagel says December ECB rate hike is likely as inflation outlook worsens
Bundesbank President Joachim Nagel said a December European Central Bank rate increase is very likely necessary unless the inflation outlook improves significantly. His call adds to support from other policymakers after the ECB held its deposit rate at 2.5% last week, putting the bank’s next decision under pressure from renewed price risks.1
TL;DR
- Nagel and Radev’s comments show that support for further tightening extends beyond one ECB policymaker, although the decision remains conditional on how the inflation outlook develops.1
- Prediction-market pricing strongly favors a 25-basis-point December increase, while assigning little likelihood to a move of 50 basis points or more.M1M2
Still to come
- The ECB’s December decision will test whether the inflation outlook improves enough to alter the case for tightening. Nagel said a hike was likely necessary unless the outlook improved significantly, while Radev said the October pause was intended to allow policymakers to assess the evidence.
Nagel said inflation was approaching the ECB’s adverse scenario and that price pressures would exceed the bank’s September projections. Bulgarian central bank chief Dimitar Radev also said the outlook had deteriorated, describing October’s decision to hold rates as a pause to assess evidence, not a signal that tightening was over.1
The ECB expects inflation to top 4% in the coming months, more than twice its 2% target, before falling rapidly from early spring. Nagel acknowledged that the surge was primarily driven by energy prices, which the ECB cannot control, and said there was little evidence of second-round effects. That leaves policymakers weighing elevated near-term inflation against signs that the energy shock has not yet spread broadly.1
A prediction market on November 3 put the implied odds of a 25-basis-point rate increase at the December meeting at about 85%, while the odds of an increase of 50 basis points or more were about 1%. The pricing points to a strong expectation of a quarter-point move, rather than a larger increase, even as Reuters reported that financial investors had not fully priced in a December hike.1M1M2
Sources
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Bundesbank's Nagel joins ECB chorus backing December rate hike · Reuters · Nov 3
AI-generated from the linked reporting and prediction-market data. Market prices reflect traders’ expectations and can change.