ECB's Nagel Signals Support for Rate Hike as Prolonged Iran War Risks Keeping Inflation High

Bundesbank President and ECB Governing Council member Joachim Nagel said the lack of a clear improvement in the inflation outlook strengthens the case for an interest-rate increase, characterizing the ECB's "wait-and-see" posture as preparedness to act rather than hesitation. Speaking in Frankfurt on Monday, Nagel warned that a longer war involving Iran could keep inflation elevated, raising doubts about how quickly the central bank can bring price pressures back under control. His comments come with euro zone inflation at 3% and markets assigning a 75% probability to a rate hike in June. The ECB held rates at 2% on Thursday. Its first-quarter bank lending survey showed the sharpest tightening in credit conditions since Q3 2023, with banks pointing to heightened geopolitical and energy-related risks. Nagel is considered one of the more hawkish policymakers on the Governing Council. His shift from emphasizing "wait-and-see" to explicitly endorsing the case for a hike stands out ahead of the June meeting, as stagflationary pressures increasingly appear across rates, credit and energy at the same time.