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(Bloomberg) — The European Central Bank may have to respond to the economic challenges arising from the conflict in the Middle East, according to Governing Council member Joachim Nagel.
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“This energy supply shock is more persistent, so we are moving away from our baseline scenario,” the Bundesbank president told Bloomberg Television on Tuesday. “It means maybe we have to do something.”
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Asked whether that could mean an increase in borrowing costs at June’s monetary-policy meeting, Nagel said he and his colleagues will decide based on data but the likelihood that price pressures will spread is growing.
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“The probability is rising that we will see more inflation everywhere,” he said. “This is something we have to take into consideration, and we will do this at our next meeting.”
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The ECB has signaled it will consider raising rates as the war-induced surge in energy costs pushes inflation further beyond its 2% target. But some officials still urge caution as costlier oil and gas weigh on economic activity, reducing the risk of second-round effects.
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Investors and most economists anticipate a quarter-point hike next month, with traders even pricing a total of about three moves in 2026. The deposit rate is currently at 2%, a level broadly seen as neither restricting nor supporting growth.
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The ECB’s decision is further complicated by the recent bond selloff, which was sparked by investor concerns over inflation. While the market moves have led to a significant tightening of financial conditions, they’ve also revealed prevailing price threats.
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Speaking alongside Nagel, outgoing French central-bank chief Francois Villeroy de Galhau said he and his colleagues are “fully determined to bring inflation back to target.”
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—With assistance from Nick Heubeck.
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