ECB's Nagel sees rate hikes increasingly likely: Handelsblatt

FRANKFURT, May 12 (Reuters) - European ‌Central Bank interest ​rate ​hikes are becoming increasingly likely, unless there is a fundamental change in the inflation outlook, Bundesbank President Joachim Nagel told ‌German newspaper Handelsblatt.

The ECB debated a rate hike already last ⁠month and signalled that a move in June was likely since high energy prices ‌have already pushed inflation well ‌above its target and it was only a matter of time before this increase starts to generate second-round impacts, perpetuating rapid price ​growth.

"We cannot ignore high energy prices," Nagel was quoted as saying in an interview published on Tuesday. "Interest rate hikes are becoming more ⁠and more likely if the inflation picture does not fundamentally change."

"We're no longer in the baseline ​scenario of the (ECB's)projections and are moving towards the adverse scenario," he said.

The ECB's 'baseline' projection sees inflation peaking at 3.1% ​in the second quarter while the 'adverse' outcome ‌would see it rising to 4.2% in the fourth quarter. Both see it back at or below target ⁠next year.

The baseline, done based on market pricing at the time, already assumes two interest rate hikes, which is still less than the three moves priced ⁠into financial markets.

Nagel argued that even if the war in Iran ended soon, euro ​zone inflation rate could remain elevated for much longer than policymakers thought only a few weeks ago.

This is because the war destroyed refinery capacities, reduced inventories, disrupted ‌supply chains, while also increasing geopolitical uncertainty.

"Our mission is price stability," said Nagel, a potential candidate to replace ‌ECB President Christine Lagarde next year.

"In the longer term, it is better for ⁠everyone if it is clear ‌that we take our ​inflation target seriously and keep the inflation rate close to 2% in the medium term."

(Reporting by Balazs KoranyiEditing by ‌Gareth Jones)

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