ECB Governing Council member Kazimir: Will raise interest rates decisively if necessary, but more time is needed to determine the next steps

According to Zhihu Finance APP, Peter Kažimír, member of the ECB Governing Council and Governor of the National Bank of Slovakia, stated that the European Central Bank will not hesitate to further raise interest rates if necessary, but determining the next course of action will take time.

On Monday, Kažimír wrote in a column published on the Slovak central bank's website: “We will make every decision when needed, and when the evidence calls for action, we will not waver.”

However, he said that ECB officials first need to assess whether the indirect impact of war-induced energy cost surges is developing as anticipated, and whether “demand and labor market conditions are strong enough to generate second-round effects.”

Last week, the ECB raised borrowing costs by 25 basis points to 2.5%, marking the second interest rate hike since the outbreak of the Iran war, as another surge in oil prices intensified inflation. Despite the ECB reiterating it will not pre-commit to future policy moves, upgraded inflation expectations and signs of economic resilience in the Eurozone have prompted markets to anticipate further policy tightening. Traders currently bet the ECB will raise rates three more times by October 2027.

Kažimír said on Monday that the market is “very clear” about how the ECB responds to new information, which creates “valuable space for close observation and judgment.”

He said: “This allows us to act whenever necessary.” After last week’s rate hike, he emphasized the ECB’s flexibility. “We should not confuse having an open attitude towards the next decision with indecisiveness.”

Inflation remains a 'thorn in the side', ECB rate hike expectations heat up

Kažimír believes the risks to inflation are “clearly tilted to the upside,” and while stronger-than-expected economic growth is also fueling inflation, the main source of price increases remains energy. He added that he is increasingly focused on gas and electricity.

“The longer high energy costs persist, the greater the risk they will permeate into long-term expectations, wages, and prices,” Kažimír said.

Gediminas Šimkus, Governor of the Bank of Lithuania and member of the ECB Governing Council, said that December could be a natural time to reassess the Eurozone economy, but that energy prices must be monitored closely ahead of next month's meeting.

He said: “As early as October, we will be able to assess the inflation outlook and judge whether it is worsening or improving. I cannot rule out the possibility of any particular meeting being called. We will make decisions based on the data to be released.”

ECB President Christine Lagarde also recently stated that Eurozone inflation will remain elevated for some time. “The current shock is lasting longer,” she said, and the Middle East conflict “is ongoing. We expect continued volatility and pressure in energy prices, although price increases may also bring the risk of slowing economic growth.”

Joachim Nagel, member of the ECB Governing Council and President of the Bundesbank, said last Friday that the ECB may need to tighten borrowing costs to a slightly restrictive level to control price increases. After last Thursday’s rate hike, the deposit rate stands at 2.5%, and many, including Chief Economist Philip Lane, believe this rate is already close to the upper end of the neutral range.

Traders have increased their bets on an ECB rate hike in October, now seeing the probability as high as 70%, up from just over 50% previously. Jefferies economist Modupe Adegbembo said: “We still tend to expect a December rate hike, but if energy prices remain elevated, a hike could come as early as October.”