ECB Keeps July Rate Options Open Amid Iran War Energy Price Risks

The European Central Bank (ECB) will keep all policy options on the table ahead of its July meeting and stands ready to take further action if rising energy costs linked to the Iran conflict fuel broader inflationary pressures, according to Bundesbank President Joachim Nagel.

The ECB raised interest rates on Thursday, becoming the first major central bank to tighten monetary policy in response to the recent surge in oil prices. The decision came after eurozone inflation climbed above 3%, while core inflation—which excludes volatile energy prices—also moved significantly above the ECB’s 2% target.

Speaking on Friday, Nagel emphasized that policymakers remain vigilant and prepared to respond if inflation continues to accelerate. He stated that the ECB’s Governing Council will assess incoming economic data before its next policy meeting in July but stressed that no options have been ruled out.

“We are keeping all our options open and are ready to respond again if necessary,” Nagel said.

Nagel, who is viewed as a potential successor to ECB President Christine Lagarde when her term ends next year, argued that the latest interest rate increase was justified because inflationary pressures are no longer limited to energy markets. Rising costs are increasingly affecting a wider range of goods and services across the eurozone economy.

He warned that the supply shock caused by the conflict in the Middle East has proven stronger and more persistent than initially expected. As a result, the ECB cannot simply ignore the impact of higher energy prices on inflation.

Sources familiar with the ECB’s discussions told Reuters that another rate hike in July is not currently the central bank’s baseline expectation. However, policymakers could consider additional tightening if oil and energy prices continue to rise sharply or if inflation data exceeds forecasts again.

Nagel added that the ECB’s decisive response helps prevent long-term inflation expectations from becoming detached from the central bank’s target, reinforcing confidence in its commitment to maintaining price stability across the eurozone.