European Central Bank Governing Council member and Bundesbank President Joachim Nagel stated on Friday that energy costs will be the determining factor in whether the ECB must push interest rates into restrictive territory. "It will largely depend on how energy prices develop and how the inflation picture evolves over the coming month," Nagel said in an interview, speaking a day after the ECB raised its key interest rate by 25 basis points to 2.5%.

His remarks come with oil prices still elevated, as international benchmark Brent crude and US West Texas Intermediate (WTI) both traded above $100 per barrel on Friday morning. European natural gas prices are also under pressure, with Dutch TTF gas futures hitting their highest level since 2022. Nagel noted that he considers the current rate to be at the upper bound of the neutral range—a zone where monetary policy neither stimulates nor restrains economic growth—but he did not rule out the possibility of moving into a "moderately restrictive range."

When asked whether the ECB's current tightening cycle could still see one or two additional rate increases, Nagel responded: "It is too early to speculate on that now. What we are seeing is that energy prices have risen over the past week, and crude oil is currently nearing $110 per barrel." He added, "Markets have been highly volatile over the last month. The move we took yesterday was a reaction based on our projections."

"The direction of energy prices over the coming weeks and months remains uncertain. Therefore, I believe the policy path will hinge on energy price movements, and I will reassess at the next meeting," he said. Nagel also expressed that he is not concerned about Europe's relatively low natural gas storage levels heading into winter, adding that the current situation cannot be compared to the energy crisis of 2022 to 2023, thanks to more diversified liquefied natural gas (LNG) procurement channels.