ECB must be ready to lift rates further, says leading policymaker

By the Editorial Team · Thursday, September 3, 2026

Gabriel Makhlouf, an influential ECB policymaker, stated that the European Central Bank is prepared to raise interest rates further if Eurozone inflation rises again, despite expecting a quarter-point hike at next week's meeting. This cautious stance highlights the ECB’s effort to balance controlling inflation, currently at 3.3 percent driven by energy costs, with supporting ongoing economic growth fueled by stronger investment and optimism.

The European Central Bank (ECB) should remain prepared to raise interest rates further if inflation in the Eurozone begins to climb again, according to Gabriel Makhlouf, governor of the Central Bank of Ireland and a leading ECB policymaker. Speaking ahead of the ECB’s Governing Council meeting scheduled for next week, Makhlouf emphasized the need for vigilance despite recent signs of stronger economic growth.

Inflation in the 21-member Eurozone reached 3.3 percent in August, significantly exceeding the ECB’s 2 percent target. This surge was largely driven by a 14 percent rise in energy prices, a consequence of the ongoing conflict in Iran and resulting disruptions to global energy supplies. Concurrently, updated data revealed that Germany’s second-quarter GDP was better than initially reported, and several sentiment indicators signaled increased optimism among businesses and consumers.

In response to the inflationary pressure linked to geopolitical tensions, the ECB was the first major central bank within the Group of Seven to raise borrowing costs, increasing the key rate by 25 basis points to 2.25 percent in June. The bank is widely expected to implement another quarter-point hike to 2.5 percent in the upcoming meeting.

Makhlouf noted that the forthcoming rate decision would be anticipated by market participants and that the ECB was likely to revise slightly upwards its economic growth forecast for the Eurozone this year. ECB staff had previously reduced the 2026 growth outlook to 0.8 percent in June, but recent data suggesting a 0.4 percent expansion in the second quarter points to a more robust economic environment.

Despite the anticipated rate increase, Makhlouf stated that monetary policy remains accommodative at 2.5 percent, with restrictive territory beginning only above roughly 2.75 percent. He underscored the need for readiness to enter this restrictive range if inflation risks intensify. “If inflation starts moving in the wrong direction, then we are going to have to move in that direction,” Makhlouf said.

At present, he maintained that no further immediate rate hikes beyond the expected move are necessary, advocating for a cautious, meeting-by-meeting approach without issuing forward guidance. Inflation expectations remain stable, and there are no clear signs of wage-driven second-round inflation effects, he added.

Makhlouf, who recently commenced his second seven-year term as head of the Central Bank of Ireland, attributed the stronger-than-expected growth partly to increased investment in sectors such as artificial intelligence and defense. This momentum, he said, contributes to the “clear cut” nature of the ECB’s upcoming rate decision. He contrasted the current economic environment with a hypothetical scenario in which inflation sat at 3.3 percent but growth remained subdued, which would have posed a more complex policy challenge.

Overall, Makhlouf’s remarks signal the ECB’s commitment to carefully balancing inflation control with sustaining economic expansion amid ongoing global uncertainties.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.