By David Barwick – FRANKFURT (Econostream) – The European Central Bank may need to move interest rates into mildly restrictive territory, depending on the development of energy prices and the broader inflation picture, ECB Governing Council member and Deutsche Bundesbank President Joachim Nagel said Friday.

“In my interpretation, so the rate hike yesterday, I think we are at the upper bound of the neutral territory,” Nagel told CNBC. “I will not exclude that we have to go in the mild restrictive territory, but as I said, it’s very much dependent on how the energy prices evolve, how the price picture is evolving over the course of maybe the next months.”

The ECB on Thursday raised the deposit rate by 25bp to 2.50%.

Nagel said the decision demonstrated the Council’s commitment to returning inflation to its target and reflected the latest ECB staff projections.

“I think first of all it gives a clear signal that we, the Governing Council, we have this strong commitment to bring inflation right down back to our target, 2%,” he said. “We are doing this in a very complicated environment, so we saw a lot of volatility over the course of the last months, and what we did yesterday is a reflection of our forecasts, what we see in our projection.”

Nagel declined to speculate about further rate increases and said he would make his next assessment when the Council met again, based particularly on the evolution of energy prices.

“Well, it’s too early to speculate on this,” he said. “I think what we see is that energy prices went up last week, now we are close to 110, and I’m talking about the oil price. So, it is not clear what are the energy prices doing over the next weeks and months, so I think it is dependent on the energy price development, and I will do my assessment when we are coming together the next time.”

Nagel said the current gas supply situation was not comparable to that following Russia’s invasion of Ukraine in 2022, in part because Europe now had LNG terminals and more supply options.

“I guess the development what I see there is not comparable with the development we had after the Russian war against Ukraine in 2022,” he said. “So, now we are much better off. We have LNG terminals. But we are getting into the cold season. This is what comes. And so the energy price development is something we have to look at.”

“I will not say that I am concerned, but we should be cautious in a way and reflect what’s going on there and what does that mean for monetary policy,” Nagel said. “Yes, it is something we have to look at.”

Gas storage levels were lower than in previous years, but did not represent a serious concern because Europe was better equipped than during the winter of 2022-2023, Nagel said.

“I think the storage volumes are lower compared to previous years,” he said. “But it’s not, in a way, a concern to me, and I alluded to the 2022-2023 winter. That was a different time. I said that LNG is now, that we have more energy options available if something is maybe really going into the wrong way.”

“So, I’m looking what the gas storage is doing, but it’s not in a way, this is not a real concern,” he said.

Nagel welcomed the resilience of the economy and said German growth could reach around 1% this year, compared with an estimate of roughly 0.6% several months ago.

“This is good news,” he said. “I think, taking the German case, I think economic growth a couple of months ago we saw this maybe roughly around 0.6%, now maybe we can end up for this year at around 1%. This is really good news.”

Nagel nevertheless said he remained “a little bit reluctant to give a clear indication” about the economic outlook.

Nagel said the rise in global bond yields reflected heightened uncertainty and complicated the ECB’s position. The central bank nevertheless had to remain focused on its price stability mandate, he said.