Bundesbank's Nagel says a December ECB rate rise is very likely necessary

Another European Central Bank rate rise in December seems almost inevitable, Bundesbank President Joachim Nagel said on Tuesday, Reuters reported, joining a long list of policymakers backing a move that would be the bank's third this year. "From today's perspective, an interest rate hike in December is very likely necessary," Nagel said in a speech in Berlin.

"There seems to be little alternative to an interest rate hike unless the inflation outlook improves significantly," he added. The ECB left its key deposit rate on hold at 2.5% last week on the premise that rapid inflation is not getting embedded, although policymakers have argued that the pause was likely temporary.

FROM KFW TO THE BUNDESBANK

Nagel has led the Bundesbank since January 2022. Before that he was Deputy Head of the Banking Department at the Bank for International Settlements from 2020 to 2021, sat on the executive board of KfW Group from 2017 to 2020 and was a member of the Bundesbank's own executive board from 2010 to 2016, according to his official biography.

He heads the central bank of a market with many lenders. The TGB market profile for Germany, drawing on Bundesbank data, counts 1,329 credit institutions at end-2025, including 232 private commercial banks, 344 savings banks and 647 cooperative institutions.

INFLATION NEAR THE ADVERSE SCENARIO

Nagel argued that inflation was approaching the ECB's 'adverse' scenario and that price pressures would be higher than outlined in the September projections. The ECB sees inflation above 4% in the coming months, more than twice its target, before it falls back rapidly from early spring as high year-earlier figures drop out of the data.

He also acknowledged that the surge was primarily due to energy, over which the ECB has no control, and that there was little evidence it was setting off second-round effects, although the ECB remained 'quite far' from achieving its price stability mandate.

SUPPORT FROM SOFIA

Bulgarian central bank chief Dimitar Radev reached a similar conclusion earlier in the day. "But the inflation outlook has deteriorated since September, and this must be reflected in our assessment of the appropriate monetary policy stance," he said in a speech in Sofia. "The October pause was a decision to assess the evidence, not a conclusion that monetary policy tightening is over."

Markets have not fully priced in a December move, Reuters reported, but investors see between two and three rate rises over the coming year as they expect inflation to stay above the 2% target for years.

THE TGB VIEW

Germany's banking market is less concentrated than its peers': the TGB market profile shows the five largest institutions held only 35.4% of sector assets in 2025, against 51.2% in Italy, 67.4% in Spain and 81.3% in the Netherlands. Deutsche Bank, 23rd in the TGB Bank Rankings with US$1,686.2bn of assets, reported a return on equity of 8.8% for 2025. Nagel's own caveat was that the surge is primarily due to energy, with little evidence of second-round effects.