The European Central Bank (ECB) has inflation under control, but must remain cautious due to an extremely volatile geopolitical environment, according to ECB Governing Council member Joachim Nagel. Speaking on the sidelines of the ECB’s annual conference in Sintra, Portugal, Nagel told Bloomberg Television on Tuesday (1.7.2025) that recent fluctuations in energy prices driven by the Israel-Iran conflict underscore the need for vigilance.
‘We are currently in calm waters,’ said the Bundesbank president, but ‘complacency is not the way to look at it.’ Investors and analysts are now looking for signals on the future path of interest rates after officials cut them for the eighth time in a year in June, with President Christine Lagarde indicating the easing cycle is nearing its end.
While some policymakers favor further rate cuts to stimulate growth, others urge caution due to lingering price pressures. The July meeting is expected to result in a pause in monetary loosening. Nagel said he would wait for the next round of quarterly economic projections in September before deciding on further moves in borrowing costs.
‘We must be prepared for anything,’ he stated. ‘I will see what the data tells me this autumn, and then we will decide.’ Data later today is expected to show inflation in the eurozone rose to 2% in June from 1.9%, according to a Bloomberg survey, still in line with the ECB’s target.
Officials expect the economy to gain momentum over the coming years, but headwinds range from U.S. trade policies to wars in Ukraine and the Middle East. Nagel expressed hope that negotiations over tariffs ‘reach a good conclusion,’ but said in the meantime, more stable commodity markets represent an improvement compared to recent months.
‘We are in a much better position than a few weeks ago,’ he said. He described the euro—which has gained nearly 14% against the dollar this year—as ‘just one factor’ in the ECB’s inflation considerations, calling its current level ‘not exceptionally high’ historically.