By Marta Vilar and David Barwick – TALLINN (Econostream) – Following is the full transcript of the interview conducted by Econostream on 26 March 2026 with Madis Müller, Governor of Eesti Pank and member of the Governing Council of the European Central Bank:

Q: Governor, would you favor an insurance hike?
A: I don’t think we should talk about an insurance hike. We should monitor the situation, look at the incoming data, and be ready to act in a timely way if conditions warrant it. But we also don’t need to act prematurely, before we see a clear indication that action is needed.

Q: What matters more for an ECB response: the conflict itself or the data?
A: We all recognize that the duration of the conflict, and the length of time energy prices remain elevated, will determine the extent of any second-round effects and the broader inflationary pressure to which we may need to respond. So we need to make an assessment. Once energy prices have stayed elevated for some time, I am sure we would soon begin to see at least some indirect effects. That is still somewhat different from second-round effects. There are goods and services for which energy is a major component of total cost, and prices there are probably already reacting. Even if it is not yet visible in the statistics, airline tickets, for example, are somewhat more expensive than they were a few weeks ago. So we should distinguish between indirect effects and second-round effects. The latter are more about high energy prices feeding into wage growth, for example, and creating more persistent, generalized inflationary pressure. I am not sure we need to wait until all of that is fully visible. Once energy prices have remained elevated for several weeks, one can already be reasonably confident that second-round effects are likely. At that point, the question naturally arises whether the ECB should respond. I also would not be surprised if, by the next policy meeting, elevated energy prices were already showing up more broadly in the prices of other goods and services. If that happens, we will need to discuss whether that is already enough to justify action.

Q: Would it be preferable to act before those effects become visible?
A: You could argue that once we are sufficiently confident that second-round effects are very likely — in addition to the more immediate indirect pass-through of higher energy prices into some goods and services — it would already be reasonable for the ECB to consider raising rates.

Q: If the ECB hikes once, is it likely to hike again?
A: Not necessarily. We still need to proceed meeting by meeting, as we have said for some time. Every rate increase carries a signal in its own right. If we decide to act at a particular meeting, that does not automatically predetermine the next step.

Q: Is it fair to say it would be lucky if only one hike were needed?
A: One hike would imply that the war in the Middle East had a sufficient impact on inflation outlook to call for ECB action. At the same time it would still suggest that the war ends relatively soon without energy prices staying elevated for an extended period and has only a limited impact. In that sense, yes, we would be fortunate. But even so, each hike is meaningful in itself. One decision does not automatically imply another.

Q: How do you regard market expectations of hikes?
A: I do not think we should speculate at this point. Markets always price future interest rates and other assets, so I understand why they move as they do. But given the amount of uncertainty right now, I would not express a specific view about what markets are expecting, especially since expectations have fluctuated so much even over the last few days. Also, in times like this, what people call the market consensus may simply be an average of very different views, so I do not know whether one can really say there is a consensus in the market at the moment.

Q: What would make a larger hike advisable?
A: This comes down to the fact that we are in a very different situation from 2022, when we did move in larger steps. At that time, rates were at minus 0.5% and inflation was already well above target. The starting conditions were completely different, and we needed to catch up with a rapidly changing situation. Now, by contrast, inflation was at 2% before the war began, and interest rates were already more or less around neutral. That means we are in a much better starting position to respond to whatever happens. That is also what my colleagues mean when they say we are well positioned. It suggests that very dramatic moves are unlikely to be necessary. More generally, measured steps are normally preferable as they come with less of a risk of causing disruption in markets. One lesson from the last tightening cycle is that the transmission of monetary policy differed sharply across the euro area depending on whether lending in a member state was predominantly floating-rate or fixed-rate. Here in the Baltics, for example, most mortgages and other loans are floating-rate, so the effect was immediate. In some larger countries, the impact came much later. If possible, we should avoid creating those kinds of divergences in transmission again. In that sense, given the current conditions, more measured steps would probably be better.

Q: How high could inflation go without needing action, if the medium-term outlook stays at 2%?
A: Since headline inflation is currently being driven largely by energy prices, which can fluctuate widely, I do not think it is wise to define a specific headline number at which the central bank must act. What really matters is whether those energy price movements create a more persistent impact. That will not be shown by headline inflation alone, but by whether second-round effects emerge. Those are the developments we should focus on, rather than becoming overly concerned about short-term moves in headline inflation.

Q: So short-term headline inflation alone would not necessarily require action?
A: Correct. If it is clearly short-term, it may not require policy action at all.

Q: Would the lack of new forecasts argue against acting in April?
A: No, I do not think the absence of a full new round of projections should in itself prevent the Council from acting if action is warranted. We can still make technical updates to the scenarios and projections. And if energy prices remain elevated until then, I think it will already be possible to draw conclusions about the broader effects of the shock. Of course, much will depend on how high prices remain. But that discussion can be had without a full new set of projections.

Q: So, is every meeting live?
A: Yes, of course.

Q: How would the possibility of the war ending right afterwards affect your thinking about an April hike?
A: At any meeting, including April, we have to decide on the basis of the information available at that time and the scenarios we consider most likely going forward. Of course, a quick end to the conflict would be good news, and that is one possible scenario. But it is only one scenario. The decision at the meeting would still have to be based on the information available then and the range of likely outcomes. And if conditions later changed materially, we would of course also have to be prepared to lower rates again if that became warranted.

Q: What are the main lessons from 2022 for the current situation?
A: First, the starting conditions are different, as I said. But one important lesson from 2022 is that a substantial energy price shock can feed into broader inflationary pressure relatively quickly. The view some people had in late 2021 and early 2022 — that the shock would be temporary and would not lead to generalized inflation — was not justified. We need to keep that experience in mind. We also have a very tight labor market in the euro area, with record-low unemployment. That may create the conditions for second-round effects if energy prices remain elevated for an extended period. So if you ask which indicators I would watch for second-round effects, the labor market would certainly be one. I would also watch what governments do in terms of fiscal support, and whether those measures might add to inflationary pressure. Another important difference from 2022 is that the supply chain bottlenecks we still had back then are largely absent now. That changes the backdrop significantly. This energy shock is also more global in nature. In 2022, the issue centered on Russia and Europe’s effort to replace Russian gas and oil. Now we are dealing with disruptions to supply across the Middle East, and those are felt globally and immediately. And even if the war were resolved immediately, some infrastructure has been damaged, so oil and gas supply could not simply return overnight to previous levels. That means the effects could be more persistent. I would also add that in terms of lessons to be drawn from 2022, I do not see large divergences among Council members. My impression is that there is broad agreement that the current situation differs from 2022. That is first reflected in the unanimity of last week’s decision not to act immediately. But there certainly also is a shared commitment to keeping inflation expectations anchored and not responding too slowly if conditions change. That, too, is a lesson from 2022.

Q: Would you see merit in a so-called hawkish hold in April, letting rhetoric rather than a move do the heavy lifting?
A: The ECB’s current messaging has been quite reasonable and appropriate. One could even argue that, because the euro area is a net importer of energy, this shock is already having a similar effect on consumers as tighter monetary policy would: households have less money to spend on other goods and services because they must spend more on energy. What matters is that we show a clear commitment to doing what is necessary to preserve price stability and keep inflation expectations anchored. And the central bank must be credible when it says it is ready to act if conditions require it.

Q: But would rhetoric alone be enough on April 30?
A: That depends entirely on the situation at the time. It may be enough, or it may not. We simply do not know yet.

Q: Was the ECB’s reluctance to be proactive last week mainly due to uncertainty about how soon the conflict might end?
A: I would not describe the ECB as lacking proactivity. Rather, given the starting conditions we discussed, it was appropriate to wait for clearer signs of indirect effects and possible second-round effects from the energy-price shock. It would have been premature to act last week. Going forward, the decision will depend on what we actually see.

Q: If last week’s meeting were today, would you still make the same decision?
A: Yes. Energy prices are actually somewhat lower than they were last week. If the meeting were today, I think it would still be appropriate to wait.

Q: Madame Lagarde said you had a seminar with military experts. What did that add to your thinking?
A: It crystallized how difficult an early end to the conflict might be. That is also what recent developments seem to suggest. There may be political signals that one side is prepared to stop, but that does not necessarily mean an immediate resolution is possible, given how far events have already progressed. That for me was the main takeaway from the seminar.

Q: Would wages be one of your triggers for acting?
A: Yes, certainly. Wage growth has been declining for several quarters. If that trend were suddenly to reverse, that would be a clear sign of second-round effects emerging. We would need to take that very seriously, and it would argue in favor of higher rates as evidence that the energy shock was feeding more broadly into inflation.

Q: When will you next get data that could show that in the labor market?
A: We will get another Eurostat labor market read on April 1. But we look at a range of indicators — including unemployment, the ECB wage tracker, negotiated wages, and national wage developments. So by the April meeting we should have more information, even if the full wage picture will still be incomplete.

Q: Any other key triggers besides wages?
A: Yes. If you look at the components of headline inflation and see that they reflect more than just the direct carry-through of higher energy prices, that would be a concern. In other words, if inflation measures suggest that something broader is happening, beyond the immediate indirect effects, that would matter. You can begin to form a view on that by looking across different inflation metrics.

Q: How resilient do you expect the economy to be, and how worried are you about stagflation?
A: A week ago, when we discussed the projections, oil prices were already significantly above the levels assumed as of the March 11 cutoff date. There was therefore a sense that the baseline might already be somewhat too optimistic and that we should be prepared for a worse outcome. Today, oil prices are somewhat lower again than they were a week ago, so it is difficult to judge. Even so, it remains hard to say how optimistic the baseline now is. Looking at the adverse scenario we discussed, we would still expect the euro area economy to continue recovering gradually, even though there would of course be effects on both growth and inflation. At this stage, however, I do not think it is appropriate to speak of stagflation. To me, that remains a tail risk.

Q: How concerned are you about food prices?
A: I am concerned, particularly because the issue is not only oil and gas but also fertilizers. That could clearly affect agricultural prices and, in turn, food prices. I also understand that the impact may come with a considerable lag, so we may not see it immediately.

Q: Does that argue for earlier action?
A: It is something one has to take into account. But the key question is how large the aggregate effect would really be. If the main issue is fertilizers being purchased now for use next year, with the impact only feeding through later into food prices, then the effect may be modest enough on its own. So we still need to look at the broader picture. But yes, what we are seeing today could certainly affect food prices further down the road.

Q: What does being “well positioned” mean to you?
A: To me, it means, first, that the starting conditions are much better than in 2022, so we do not need abrupt catch-up moves. But it also means that we must be prepared to take decisions when conditions warrant them. So, it does mean we are ready to act if necessary.

Q: By “abrupt,” do you mean the size of moves?
A: Yes. I mean that we are not in a position where we need to catch up quickly through repeated 50-basis-point hikes.

Q: So there is some breathing room, potentially until June?
A: Potentially, yes. But it depends entirely on how conditions evolve.

Q: Would you call a hike this year increasingly likely?
A: Given the degree of uncertainty that we are dealing with today, I don’t think I should put probabilities on any possible future decisions we could take. It is too early to say that increasing rates is close to inevitable.

Q: But have no-hike scenarios become optimistic ones?
A: There is still a scenario in which rates do not need to rise. But the longer the war in the Middle East lasts, and the longer energy prices remain elevated, the more likely it becomes that we will have to respond as second-round effects emerge. I do not want to attach precise probabilities to those scenarios. It would be difficult and potentially misleading to do so. So, if you are asking whether I think there is more than a 50% chance of a hike, I would say it is still too early to tell. But yes, the no-hike scenario would be an optimistic one.

Q: What do you think Lagarde meant by “propagation” from the conflict?
A: One could argue that we are already seeing some indirect effects in goods and services for which energy is a significant input cost. Those prices may already be responding. For example, although I have not personally tracked airline fares, I suspect they are already somewhat higher. That would be consistent with energy prices having remained elevated for several weeks.

Q: Was there evidence of that already at the Governing Council meeting?
A: At that point, there was not really enough hard data to discuss it in any meaningful way. We may have somewhat more now — not necessarily much more official data than we had a week ago, but by the next meeting we will most likely be in a better position. Even if the Eurostat data are still incomplete, we can still monitor other indicators that may provide useful signals.

Q: Are we already in the adverse scenario?
A: It is true that oil prices jumped as we were meeting, and that did create a sense that we might be moving closer to the adverse scenario. Since then, however, conditions have shifted somewhat. There is a bit more optimism regarding the conflict, and oil prices have come down somewhat. So at this point I would say we may be somewhere between the baseline and the adverse scenario.

Q: Do you see much potential for US private-credit problems to spill over to the euro area?
A: It is something we should monitor. For the time being, though, it looks more like a US issue. That said, there is of course some exposure among European investors to American private-debt funds. Private debt and private equity markets are less developed in Europe, so the risks in that segment are more concentrated in the United States at present. At the same time, Europe has long argued that it needs deeper capital markets. The lesson is probably that as such private markets grow, transparency and data become increasingly important. At the moment, we may simply not have sufficiently good information to assess the risks properly, including the direct risks that could affect us.

Q: If it were late April and conditions were as they are now, what would you do?
A: It is hard for me to imagine a scenario where conditions would be exactly as they are now by the end of April. If there is no resolution to the war then oil and gas prices staying at current levels already would have led to further downstream effects. And we would need to make an assessment on how much of the shock is already feeding through into other prices. I do not want to speculate beyond that.

Q: Could the question of hiking or holding become a very difficult call by the April meeting?
A: It certainly could. Things could still evolve in many different ways over the next three weeks, so no one can know how clear-cut the decision will be by then.