Several European Central Bank policymakers struck a cautious but hawkish tone in the wake of Thursday's policy meeting, reinforcing the message that the Governing Council remains prepared to tighten policy further should the inflation outlook deteriorate. The comments come as the ECB continues to navigate the later stages of its most aggressive monetary tightening cycle in its history, with inflation having retreated from double-digit peaks but still above the bank's 2% target.

Šimkus: $100 Oil Will Have Repercussions

ECB Governing Council member Gediminas Šimkus warned that oil prices around $100 per barrel would have repercussions for inflation, arguing that the recent surge in energy costs has increased upside risks to the price outlook. Energy costs carry particular weight in euro area inflation dynamics, as the bloc relies heavily on imported oil and gas, making it more exposed to geopolitical supply disruptions than energy-independent economies.

"There's no value in rushing with a decision now," Šimkus said, noting that policymakers will have additional inflation data available before the September meeting. He added that he still sees the probability of another rate hike as higher than that of a hold. Šimkus also reiterated that the ECB has yet to see evidence of second-round effects—where rising living costs feed through into sustained wage and price increases—from the latest energy shock.

Rehn: Keep a Cool Head

Echoing that view, ECB Governing Council member Olli Rehn said the central bank is not seeing signs of second-round inflation effects and urged policymakers to "keep a cool head" despite the recent jump in energy prices. Rehn nevertheless cautioned that the energy crisis is not over yet, suggesting that the Governing Council cannot yet assume the latest shock will prove temporary.

Makhlouf: Inflationary Pressures Have Not Gone Away

ECB Governing Council member Gabriel Makhlouf also stressed that the ECB will have considerably more information by September but noted that inflationary pressures have not disappeared.

Markets Lean Toward Additional Tightening

Following the ECB's policy decision, the usual post-meeting leaks indicated that the central bank is ready to raise interest rates in September if the inflation outlook were to deteriorate. This suggests that the ECB would need a de-escalation in the Middle East and benign inflation figures to hold off from increasing rates further.

Markets continue to lean toward additional tightening given the US-Iran conflict and surging oil prices. Money markets are pricing in a 70% probability of a rate hike at the September meeting and approximately 42 basis points of total tightening by year-end. The September gathering will be one of the ECB's quarterly meetings at which staff publish fresh macroeconomic projections, giving policymakers an updated read on inflation and growth trajectories before committing to the next move.