By David Barwick and Marta Vilar – FRANKFURT (Econostream) – Following is the transcript of the interview conducted by Econostream on 11 May 2026 with Martin Kocher, Governor of the Austrian National Bank and member of the Governing Council of the European Central Bank:

Q: Governor, on April 30, Madame Lagarde knew in which direction things were heading. Now, in an interview with Spanish television, she talked about massive uncertainty, the need to collect more data, and the risk of acting too soon or too late. How should we interpret the difference?

A: The message of the last Governing Council meeting was clear. We saw a positive option value to waiting, given high uncertainty and the unclear effect of the oil price shock on the economic outlook and aggregate demand. It is also clear that, in the projections for the baseline scenario, there are two rate hikes baked in before year-end. So, if things do not change for the better in terms of price developments, there is at some stage, in the not-so-distant future, a necessity to rethink our monetary policy stance. That the President’s message seemed somewhat different should not be overstated. Sometimes there is good news, or at least it seems so, and sometimes there is bad news from the Middle East. Hence, I agree with her when it comes to the need for collecting more data. The next decision will be taken in June, and if things do not improve, if prices continue to be high or rise, it is difficult to keep interest rates at the level we have until the end of the year. That is clear, given our projections.

Q: Should markets see June as genuinely open, or as a meeting at which a hike is likely unless things improve significantly?

A: We are still in the meeting-by-meeting approach. But according to me, not everything is open. A rate cut is very, very unlikely at the moment. What we are going to discuss is whether we hold or whether a hike is needed. If inflation rises, inflation expectations will be very important. We will have new data in June that will help us see what it means for medium-term inflation expectations. Five-year expectations have fortunately remained stable, but two- to three-year expectations have ticked up. That is something we will watch closely.

Q: Is it fair to say that the baseline now is to move in June?

A: No. We decide meeting by meeting, and do not know yet what is going to happen until June. If we see a peace agreement, if hostilities in the Middle East end, if there is more certainty about the economic outlook, then we want to avoid an unnecessary hike. But, of course, you do not want to postpone necessary hikes. That is the starting point of any discussion, and then there will be judgment about what is necessary, based on updated data.

Q: One of your comments in a previous interview was that it would be very hard to get around a rate hike in the near term unless there were some sort of improvement. When you say “near term,” does that mean only June?

A: It does not mean only June. There are several meetings until the end of the year. The baseline has assumptions about future oil and gas prices that are lower than what we’ve seen the last couple of weeks. Whether this continues, we do not know. But if it continues, the assessment is that we are still close to the baseline projection, but not better than the baseline. That means that, at some stage, we have to draw the conclusion from what we know anyway, given the baked-in two hikes.

Q: You also said the ECB should not wait too long to hike if the situation does not improve clearly and quickly. What constitutes a clear and quick improvement?

A: What Vice President de Guindos said about the blockade of the Strait of Hormuz is the important aspect here. The Strait is still mostly blocked. Given how important this is for the price level, improvement there would render a somewhat different assessment. It is not the most likely outcome, but the meeting-by-meeting approach gives us the opportunity to wait until the meeting to see whether there is credible improvement, which I think everybody hopes for.

Q: So we are not really yet in the adverse scenario, but rather still broadly in the baseline, just with more upside risk than we had?

A: I think that describes the assessment of many members of the Governing Council. The baseline is still the one we are closest to, but we are currently a bit worse than the baseline. We are not close to the adverse scenario, but the longer it takes, the closer we get.

Q: What if we get a peace agreement, a truce or a ceasefire before June 11? Would that justify waiting, or would you need confirmation in terms of inflation expectations and energy prices?

A: It depends on whether the agreement is credible and solves the problem in the medium term. We would also need to assess more permanent destruction to transport and production facilities. Whether we will know that by June is really hard to tell.

Q: We will likely get some revisions to the projections in June. How would you weigh those versus observed data developments with regard to wages and inflation expectations?

A: The projection is the basis for our decision. The March baseline is so far the most likely outcome. If we stay close to that until June, there might be adjustments to the baseline projection, but not dramatic ones. We also look at wages, inflation expectations, bank lending and general credit conditions. It’s the usual assessment, but under high uncertainty and with lots of upside inflation risks and downside growth risks.

Q: What if the June projections show inflation at 2% in the medium term after a temporary overshoot? Would that justify holding interest rates in June?

A: We will see. Data dependence does not mean data-point dependence. The model projections provide relevant data points. Inflation expectations are very important as well. An important aspect is whether market participants also have an inflation outlook that is in line with our medium-term target of 2%. If that is not the case, clearly it is necessary to signal that the medium-term target is 2%.

Q: You said there were some upticks in two- to three-year inflation expectations. How worrying are these, or how much more pronounced would they have to become to be worrying?

A: Everybody is struggling with this question, because it is somewhat of a new situation for the Eurozone. We are only about two years removed from a strong inflation episode caused by an energy price shock. To what extent does this new shock evoke memory effects for consumers and firms — for firms in pricing, and for consumers in wage demands? We do not know exactly. This is a psychological channel that we can observe only through surveys and early data on prices and wages. Since there have not been many wage negotiations lately in Europe, it is hard to say. When it comes to price increases outside directly affected economic sectors, there is anecdotal evidence of second-round effects, but not much more, yet. There should be no doubt that we will decisively fight medium-term inflation above 2%, but expectations rather quickly could change given the nature of the shock.

Q: How important are wages in general for the June meeting? If the hard wage evidence is still limited, could that be enough for you to decide that the outcome has to be a hold?

A: A large part of the wage bargaining data will come later, in autumn. It will be important to see what has been happening so far. So far, we are seeing quite some restraint, but, as I said, there are very few data points in terms of wage development and negotiations. Given the nature of the shock, it will be difficult to delay the policy response until there is certainty about wage responses, because those might take until the end of the year, or even later, to be fully conclusive.

Q: You and a lot of your colleagues have noted that demand now is nothing like it was coming out of the pandemic. How much protection does this give us against second-round effects, and could it allow us to wait a little longer?

A: It gives us some protection, but whether it provides lasting protection is difficult to say, given memory effects that we cannot assess exactly. It may buy us a bit more time than in 2022, but how much more, we will see. The European economy has proved resilient despite the crises. Demand is weaker than in 2022, but not very weak. If the economiy stays resilient, the demand side could also contribute at some stage to stronger price developments.

Q: To what extent have market expectations and the broader tightening of financial conditions already done some of the ECB's tightening work?

A: To some degree, ECB communication has contributed to the right perception of the situation. If you look at credit, you see tightening by markets, not by our decisions. But you cannot rely on that forever. If the shock is large enough and more persistent, ultimately the ECB has to take action.

Q: In the early part of April, you noted the reluctance to hike into an economy that was already weak. Given this weakness, how would a hike, if you do one, take effect—principally through signaling, through expectations, through its effect on demand?

A: The problem with a supply shock is that monetary policy mainly affects demand rather than the supply side. A hike would weigh on demand and perhaps also work via expectations, which is important given the experience of 2022 and 2023.

Q: And could one hike of 25bp be enough, given the weakness?

A: It is early to talk about a potential second hike. For now, we are discussing holding or hiking, and whenever that takes place, we will see what happens afterwards. It is true that economically speaking, the effect of one 25bp hike is not huge. On the other hand, it is a clear signal if it happens, and then we will see and analyze its impact in the data.

Q: So is your bias toward one-and-done?

A: No. If the situation does not improve, my bias would be: One-and-watch.

Q: You said that the ECB's response must be decisive and timely. What would make it decisive? Does this require a June move, or could it mean a bigger move, such as a 50bp hike?

A: A 50bp hike in June is a very unlikely scenario from today’s perspective. Of course, no one knows what’s going to happen over the next couple of weeks. But still, I see a 50bp hike as a very unlikely scenario.

Q: If a 50bp hike is unlikely, what would show decisiveness?

A: Decisive means clearly communicating what we are doing. Despite the April hold, the communication was clear that we will do what is needed to keep inflation at 2%. Communication has to be credible and in line with our analysis. The key is to preserve credibility.

Q: If you do not move in June, for whatever reason, do you think part of this decisiveness should be delivered via hawkish communication?

A: Not necessarily, but in that case, I think that we should clearly argue why we did not hike. If there is enough information showing that a hike is unnecessary, then we will have arguments to support a hold, if that is our decision. The same is true for a hiking decision. It is important to be very transparent, to argue clearly and to have language that is understood by markets and the population. Inflation expectations matter a lot at the moment because of recent experiences. So far, I think the communication has been quite clear and transparent.

Q: What kind of constellation of circumstances or developments would you need to think that a 50bp hike might be worth considering?

A: This is very theoretical now, but one problematic scenario – that need not necessarily lead to a 50bp hike – would be that the situation in the Middle East worsens again, there is full-blown war and no prospect of opening the Strait of Hormuz. Then oil prices would rise, but demand would also fall, and it would have negative effects on the economic outlook for the Eurozone. In that case, the optimal response is not straightforward. Oil prices would affect the price level to a stronger extent, but many other areas of the economy would not be able to raise prices, and wages would perhaps not increase to the same extent. I do not see realistic developments at the moment that would lead in the direction of your question.

Q: Back to the scenario in which you decide in June that you can hold. Meeting-by-meeting and data dependency aside, would that not make a July move almost inevitable?

A: If you look at market expectations, three hikes were priced in at one point. Now it’s two hikes, and the timing of these hikes has been postponed to some extent. There might be developments that point in this direction. But we are talking about the next few months, and September is still within the time horizon of a few months. By then, we will know much more.

Q: Did you prefer the two-hike expectations or the three-hike expectations?

A: I am not sure whether it should be up to me to rate market expectations. We have analyzed future prices after the start of wars and found that they have often been too optimistic, especially when Middle East conflicts affected oil prices. Whether this is also true for interest rate expectations, is an open question. Since our baseline scenario incorporates two rate hikes, and since we are close to the baseline so far, I think market expectations for interest rates might not be too far off at the moment.

Q: So you do not tend to think of a June hike as a one-off insurance hike. Your inclination is more toward a second hike if things do not improve?

A: I was never convinced by the idea of insurance hikes. Either the data provide enough arguments for a hike, or they do not. At the moment, we are at 2% with the DFR, we are quite flexible, and we have no forward guidance. So we should decide based on the data, not on purely precautionary motives. I made the same argument in reverse about a rate cut half a year ago.

Q: If the ECB does hike in June, how soon should a next step follow, assuming the data continue to worsen and justify more? Would you then need to wait until September out of caution?

A: I think if there was a hike in June and we do not have any very unexpected developments, then September could be the natural next point, when the new projection is published and the data are in. Just for practical reasons, but it is too soon to talk about this now.

Q: You warned that broad fiscal support could force monetary policy to do more. Is this because it weakens the energy price signal, or because it sustains demand in general?

A: One reason for why very quick and quite forceful hikes were necessary in the last inflation episode was expansionary fiscal policy, which has put even more pressure on monetary policy. The fiscal space is much smaller now. Our clear advice is to target and tailor the measures and to implement them temporarily. So far, fiscal responses have been small compared with 2022 and 2023. We are at the moment talking about 0.2% of GDP on average. In 2022 and 2023, they accounted for more than 2% of GDP.

Q: Are you currently seeing any fiscal responses that could complicate the ECB's job?

A: There are differences between countries, but at the moment the overall fiscal impulse is still small.