ECB will have to raise rates again, extent uncertain, Kazimir says

The European Central Bank (ECB) will likely have to raise interest rates again, though the extent remains uncertain, according to Slovak central bank chief Peter Kazimir. The ECB maintained its key interest rates at their current levels last week, yet several policymakers have argued that further hikes are needed sooner rather than later, given the impact of high energy costs.

Kazimir, a vocal advocate for stricter monetary policy among the 27-member Governing Council, stated that the question now is not whether more action will be taken, but how much more will be required to bring inflation under control. He emphasized that markets may still underestimate the necessary response, as the focus should be on the overall path needed to bring inflation back to the ECB's 2% target and maintain that level.

Current market projections suggest between two to three rate hikes from the ECB over the next year, but Kazimir cautioned that financial markets may still be underestimating the required steps. He pointed out that inflationary pressures could build before firms pass them on to consumers, and expectations could evolve before any noticeable impact on prices in the data.

Kazimir cautioned against waiting for certainty, arguing that doing so does not constitute good policy. He stressed that growth may slow down, but this does not necessarily weaken inflation, as cost pressures have been mounting for months. Additionally, growth is relatively robust due to government budget support and fiscal prudence, which can help sustain inflationary pressures.

Kazimir concluded that the ECB's recent pause in rate hikes was not the end, and action should be taken before high inflation becomes normalized.