Global Market: ECB may need more rate hikes to curb inflation risks, says Kazimir

The European Central Bank may need to raise interest rates at least one more time to bring inflation under control, while a worsening economic and geopolitical outlook could require additional tightening beyond current market expectations, Slovak central bank chief Peter Kazimir said, as reported by Reuters.

The ECB kept borrowing costs unchanged at its latest meeting but signalled that a rate hike could come as early as September after oil and gas prices surged this month following renewed tensions in the Middle East.

Kazimir, considered one of the ECB’s more hawkish policymakers, said the central bank should continue with a measured adjustment to address inflation risks. He argued that even if the current situation improves moderately, another rate increase would still be necessary.


The Slovak policymaker said upcoming economic data and geopolitical developments would need to show a significant improvement for him to reconsider supporting a rate hike at the ECB’s September meeting.

According to Reuters, Kazimir stressed that policymakers need to act ahead of potential inflationary pressures rather than waiting for them to become fully visible. He noted that second-round effects from rising energy costs can develop gradually and become harder to reverse once they are firmly established.

The ECB had cited the absence of major second-round inflation effects as one reason for holding rates steady in July. However, Kazimir said policymakers must remain cautious and take preventive action to avoid a renewed inflationary cycle.

Financial markets are currently pricing in at least two more ECB rate increases, with the first expected by October and another by March. However, these expectations remain highly sensitive to changes in energy prices, particularly oil prices, which are currently fluctuating between the ECB’s baseline and more moderate scenarios.

Kazimir warned that a further escalation in geopolitical tensions, leading to stronger and more persistent price pressures, could force the ECB to tighten monetary policy more aggressively than investors currently anticipate.

He also indicated that the central bank should avoid surprising financial markets at its September meeting, after maintaining a predictable approach during its July decision, Reuters said.

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