ECB Governing Council member and Bundesbank President Nagel said the ECB may have to act at its June meeting as the Iran energy shock proves persistent and the probability of broader inflation spreading continues to rise.

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Summary:
The following is drawn from Nagel’s interview with Bloomberg Television on Tuesday:

• Nagel said the Iran-driven energy supply shock is proving more persistent than expected, pushing the ECB away from its baseline scenario and potentially requiring a policy response at the June 11 meeting
• Asked directly about a rate hike, he said the probability of inflation spreading more broadly is rising and that the Governing Council will take this into account at its next meeting, deciding on the basis of incoming data
• The ECB deposit rate currently stands at 2%, a level broadly considered neutral, and investors are pricing around three quarter-point hikes over the course of 2026
• The recent bond market selloff has tightened financial conditions significantly but has also served to highlight the scale of prevailing inflation risks
• Speaking alongside Nagel, outgoing Banque de France governor Villeroy de Galhau said the Governing Council is fully determined to return inflation to the 2% target

Bundesbank President Joachim Nagel said the European Central Bank may need to take policy action at its June meeting, as the energy shock stemming from the Middle East conflict proves more durable than anticipated and the risk of inflation spreading across the broader economy continues to grow.

Speaking on Bloomberg Television on Tuesday, Nagel said the persistence of the Iran-driven energy supply disruption means the ECB is now moving away from the baseline scenario it had been working to, a significant admission from one of the Governing Council’s most influential members. Asked whether that shift could translate into a rate increase at the June 11 meeting, he stopped short of a firm commitment but made clear the direction of travel, saying the probability of seeing broader inflationary pressures is rising and that the Governing Council will factor this into its deliberations.

The ECB’s deposit rate currently sits at 2%, a level widely regarded as broadly neutral, neither actively supporting nor restricting economic activity. A move higher would represent a shift into explicitly restrictive territory, a step the bank has signalled it is prepared to consider as war-induced energy costs push inflation further above its 2% target. Nagel’s remarks align closely with those made by Austrian National Bank governor Martin Kocher on Tuesday evening, who said a June hike would be unavoidable if the Hormuz Strait remains closed. The two statements together suggest the hawkish wing of the Governing Council is consolidating around the case for action.

Markets are already positioned accordingly, with traders pricing around three quarter-point ECB rate increases over the course of 2026. The recent sharp selloff in eurozone bond markets has tightened financial conditions considerably, but policymakers appear to view this as a reflection of genuine inflation risk rather than a reason to hold back.

Outgoing Banque de France governor Francois Villeroy de Galhau, speaking at the same event, reinforced the message, stating that he and his colleagues remain fully committed to returning inflation to target, adding institutional weight to the hawkish signals coming from Frankfurt.