European Central Bank Governing Council member and Bundesbank President Joachim Nagel has indicated that interest rates may need to rise to levels that somewhat curb economic growth if energy prices remain persistently elevated. Speaking in London on Tuesday evening, Nagel stated that if the economy faces such high energy prices over an extended period, "it cannot be ruled out that monetary policy must enter mildly restrictive territory," though he added that it is still too early to determine whether such action will be necessary.

The ECB has already implemented two rate hikes, and markets anticipate up to three additional increases in the current tightening cycle. Eurozone inflation currently exceeds 3%, and is projected to remain above the ECB's 2% target for the coming year. Earlier this year, ECB Chief Economist Philip Lane suggested that the neutral rate could reach as high as 2.5%, which aligns with the current policy rate level.

Irish central bank governor Gabriel Makhlouf has expressed the view that rates would only enter restrictive territory once they climb above 2.75%. Nagel voiced concerns that elevated inflation could trigger second-round effects through wage negotiations, noting that if such conditions persist for a longer duration, "we will see some second-round effects." He emphasized that this is precisely why the ECB must "remain vigilant."