OeNB governor says another interest-rate increase is needed this year

Martin Kocher used a meeting at the European Forum Alpbach to make an unusually direct case for higher interest rates, saying Austria’s inflation outlook required action soon.

“Another interest-rate increase is needed this year,” Kocher said, pointing to Austria’s August inflation rate of 3.2%, up from 2.8% in July. Fuel and heating oil prices pushed prices higher, while natural gas costs are also expected to rise in the coming weeks. Gas storage facilities across the European Union are only about 60% full, the lowest level for this time of year since 2013.

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Another interest-rate increase is needed this year.

Services added to the pressure, with inflation in the sector reaching 4% last month. Kocher said a rapid rate increase was necessary to bring inflation down over the medium term. “It is not about 2026, but about 2027,” he said, as the European Central Bank seeks to stabilize inflation at 2% over the long term. Eurozone inflation rose from 2.9% in July to 3.3% in August.

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It is not about 2026, but about 2027.

Kocher, who became OeNB governor on September 1, 2025, appeared at Alpbach with chief economist Wolf Heinrich Reuter to argue for attention to longer-term pressures. Reuter said the scale of population ageing is often underestimated. The number of people over 65 for every 1,000 workers is expected to rise from 250 today to 400 by 2050.

The resulting burden on pensions and healthcare is expected to grow sharply. Austria currently spends about 12% of gross domestic product on pensions, a share projected to exceed 16% by 2070. The tax-funded subsidy would rise from 2% to 6% of GDP. Long-term growth potential, meanwhile, has fallen from 2% to 3% around the turn of the millennium to between 1% and 1.5% in 2010, and is expected to drop below 1% by 2035.

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The scale is very often underestimated.