German Bundesbank President Joachim Nagel stated that the possibility of the European Central Bank (ECB) having to raise borrowing costs has increased due to the impact of the war in Iran. "I still hold some hope for a significant easing of tensions in the Middle East—but we cannot ignore high energy prices," the German central bank chief said in an interview. "The likelihood of an interest rate hike is increasing, unless there is a fundamental change in the inflation situation." Economists are betting on two ECB rate hikes this year, in June and September, with market expectations pointing to a third by the end of the year. "We are no longer in the baseline scenario projected by the Eurosystem, but are moving towards an adverse scenario," Nagel said, referring to the different growth and inflation paths outlined by the ECB in March. He also warned, "We may still face considerable inflation in the future." "Price increases may not be limited to fuel. We know from past experience that it often takes up to 18 months for supply shocks to transmit across various goods," Nagel added. As one of the more hawkish members of the ECB Governing Council, Nagel acknowledged that weak economic growth in the eurozone could influence next month's decision. "No one wants to raise interest rates when economic growth is under significant pressure," he said. "But our mandate is to maintain price stability. In the long run, it benefits everyone if the markets understand that we take our inflation target seriously and keep inflation around 2% over the medium term. We will fulfill our duty without excuses or conditions."
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