ECB Officials Signal Further Rate Hikes as Energy Prices Weigh

European Central Bank policymakers have indicated that further interest rate increases remain possible if the recent surge in energy prices continues to feed into broader inflation across the euro zone.

The ECB raised borrowing costs on Thursday for the second time this year, lifting its key rate from 2.25% to 2.50% — the upper end of its estimated neutral range, which neither stimulates nor restrains the economy. Sources familiar with the deliberations said policymakers anticipate additional tightening in the months ahead, with a move potentially coming as early as October.

Speaking on Friday, Bundesbank President Joachim Nagel said the central bank might need to push rates into territory that mildly curbs economic activity. "I will not exclude that we have to go into the mild restrictive territory, but as I said, it's very much dependent on how the energy prices evolve, how the price picture is evolving over the course of maybe the next month," he told CNBC.

Estonia's central bank governor, Ülo Kaasik, described market expectations for at least three more rate hikes over the next year as "understandable," pointing to the latest rise in fuel prices and the risk that food could also become more expensive. In a blog post, he noted that recent developments in energy markets suggest gas and fuel price increases could be "much larger and last longer than expected in the forecast."

Slovenia's central bank governor, Primož Dolenc, also warned in a blog post about "rising energy and electricity costs in the autumn and winter months."

The ECB on Thursday slightly raised its projections for growth and inflation, but those forecasts did not capture the most recent energy price movements. Money markets have begun pricing in at least three additional rate increases over the coming year.