By Marta Vilar – WASHINGTON (Econostream) – European Central Bank Governing Council member Mārtiņš Kazāks said on Wednesday that he was comfortable with market expectations of two hikes in 2026 starting in June but added that current flat real rates were consistent with looking through the energy shock arising from the Middle East conflict.
In an interview with CNBC, Kazāks, who heads Latvijas Banka, said that tighter financial markets were “to some extent … doing some work for us, for the central banks, already by tightening the pricing.”
The impact of the shock on the real economy was not visible yet, he said, adding that the recent rise in Eurozone CPI reflected only mid-March inflation data.
He said central banks must “be watchful and cautious and see what happens with those non-linearities,” referring to second-round inflation effects.
“If they tend to kick in … then we need to move,” he said. “At the moment, I think we are in a comfortable situation. Markets have tightened a bit, we can see where the data leads us. The markets, as for euro area, expect two hikes starting with June. I don’t have anything against it at the moment. Let’s see how it develops but of course at some point we will have to deliver.”
Asked whether an April hike would be premature, he said the ECB would need to evaluate the data at the time, track corporate repricing, and gauge spillover effects across the economy.
“The good thing that we have seen so far in the march data is that core inflation did not jump,” he said. “Let’s wait for more data.”
The ECB should be monitoring data on labor markets, corporate repricing and confidence indicators, he said.
Kazāks added that even with markets pricing in 50bp of tightening, real rates remain flat, “and in my view that is very much consistent with looking through” the energy shock.
He said the ECB had not been too hawkish so far, as it had just been “doing our job, given the experience that we have.”
“There’s no need to wait too long if we can move quicker,” he said. “We have seen that the markets have already been pricing this [in], so it is helping us currently. But when the data will come in, we will move.”
He said that a rise in corporate repricing intensity would be “a very clear signal for us to move.”
Rate hikes during a recession were possible if the energy shock triggered second- and third-round effects, he said, adding that the ECB would have to bear that “cost” to keep inflation from rising further.
The shock was still in its “early stages,” he said, and the ECB had to move meeting by meeting in order to assess its impact on the economy.
“Because there are two kinds of opposing forces,” he added. “One is pushing inflation up, which is the war and supply restrictions, and the other one is if the economy is to be suffering more, then this will of course pull down the price effect.”
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