By David Barwick – VILNIUS (Econostream) – Following is the full transcript of the interview conducted by Econostream on 28 May 2026 with Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania and member of the Governing Council of the European Central Bank:

Q: Governor, is there anything one could easily imagine that would keep you from supporting a June hike?

A: I can think of unlikely scenarios — something like depressing news concerning the economy. Given all the unexpected developments we have seen over the last five years, I have a good imagination; many things happened that we thought could not happen. But I do not think we are likely to see better news on the inflation front that would remove the case for hiking in June. So, the scenarios that would lead me not to support a hike are unlikely.

Q: What if the projections show inflation going above 2%, but then coming back down to 2% in the medium term? Is that a reason to look through the shock?

A: Our projections are a combination of the model, the data we have and the assumptions. Here the assumptions are very important. If projections show inflation coming back to 2%, that also reflects the embedded interest rate path. That path currently includes hikes. So, the relevant question is what the inflation path would look like without a hike. I do not mean that we simply follow the interest rate path embedded in the projections, and I am also not saying that market expectations steer us. But given the many signals of inflation pressure, I think a hike in June would be a prudent monetary policy response.

Q: Do you think of a June hike as a one-off insurance hike, or would the bias then be toward a second hike unless the data improve?

A: I do not think of this as an insurance hike. The nature of supply-side shocks is such that we have to weigh inflationary pressures that could become entrenched against the effect on an economy that is weak. At the moment, we still do not have much hard data on inflation. But we have quite a lot of market-based and survey-based data, and these clearly point to a more inflationary environment. We need to react carefully, because the economy itself can act as a natural disinflationary force. But I still think a hike is needed. When you look at real short-term interest rates, they are accommodative. A hike is needed to contain inflationary pressures and avoid second-round effects.

Q: If the data continue to be negative after June, would July be the natural follow-up meeting, or would September be the more natural time to move again?

A: We are still in the very initial stages of the shock, which only started three months ago and is therefore still very fresh. But the memory of the recent high-inflation episode is still very strong among households, firms and wage-setters. After the first move, I think it is right to collect more data and not feel constrained by a very limited timeframe to act again immediately. In September we will have new projections, which will broaden the assessment of the economy with new data. I still think a second hike is more likely than not. But I do not think we are now in a position to say whether it would be July, September or October.

Q: Inflation expectations have started to move. Is that worrying?

A: Short-term inflation expectations have moved quite a bit. That reflects the 2022 inflation episode. If you look at the data, consumer price expectations for the next 12 months in the ECB Consumer Expectations Survey have gone up. Selling-price expectations in industry, retail trade, services and construction have also gone up. In a way, it is natural to see short-term expectations rise. Memories of the previous inflation episode are still vivid. Households react quickly to what they see at gas stations, in utility bills and in food stores. We do not want to see any larger move in medium- to long-term expectations, which are still anchored, even if one can see some movements there too.

Q: Is your greater concern that inflation could be higher for longer, or that the public and markets may doubt the ECB’s willingness to act?

A: I do not see the distinction in quite that way. It is not about how someone sees one institution in isolation. The credibility of the institution and its focus on the mandate are very important. We should come to our decisions from the best policy point of view. I believe this is how markets, people and companies see the ECB. They have confidence in the ECB. The ECB has credibility, and we will do what is needed to make sure inflation is at 2% in the medium term. That potentially requires a hike in June. Future decisions will be made meeting by meeting, based on the data.

Q: Given the weakness of growth, would a 25bp hike work mainly through demand, or through expectations and signaling?

A: A hike or a cut works through the demand channel, the expectations channel and also through the signaling channel. A 25bp hike is still limited, relative to the economy as a whole. We should also not forget that, via market expectations, the potential hike has already been partly passed through to the economy. That is, the economy is already feeling it. So, I would not overemphasize the direct impact on the economy of a 25bp hike, or even of 50bp of tightening over the course of this year, for which the same argument applies. What is more important is the expectations channel. It is important, especially for medium- and long-term expectations, that households and companies see the central bank reacting. We would react to prevent second-round effects and a price-wage spiral.

Q: What is your view of how governments have reacted to the increase in energy prices?

A: The fiscal reaction is very important. It could prolong the shock, if it adds to demand in the economy. It can also make it easier for the energy price shock to pass through the economy via transport costs or production costs, and potentially into wages. It would probably be better if there were more agreement at the European level on how to react, because the measures applied by EU governments are different and of different magnitudes. But my perception is that government responses have been of quite limited scale — or, to put it another way, not comparable to what we saw in 2021 and 2022.

Q: It sounds as if the June 11 decision will be easy, because even the most dovish members of the Governing Council have indicated they intend to support a hike. What will the discussion be about if everyone agrees?

A: Unanimous decisions are very good, because unanimity means we are basically united behind one view. But one can arrive at that view from very different angles and perspectives, and an exchange of ideas is still very important. It is not only about this meeting. It is also about laying the ground for ideas and thinking about the future. Still, we have not yet had the June meeting. It is May 28, so there are still two weeks until the decision. Let us not rush. Based on today’s information, I support a hike. But we have learned that the situation can change quickly, even though, as I said earlier, it is difficult to think of a scenario that would change my view unless it were very negative.

Q: Could some people on June 11 want to hike by 50bp?

A: I do not think we are in that situation. We have considerably more market-based and survey-based information than hard data, and the evidence of second-round effects is still very limited. Perhaps someone will want to discuss it. We will see. But I personally think 50bp at this point would be too much. We don’t have to catch up.

Q: If longer-term expectations remain anchored, but short- and medium-term expectations keep moving, should the ECB react again before it has hard evidence on wages?

A: One thing we do not want to see is this transmitting into wages. For that reason, we need timely decisions to prevent short- and medium-term expectations from de-anchoring. We do not want companies to move into repricing mode, or workers to demand higher wages because they see higher prices in food stores and utility bills. It is natural to see short-term inflation expectations increase, and that increase resembles what we saw in 2022. But that is exactly why we should make a prudent policy decision. Prudence means a timely hike now, to contain inflation pressure, prevent second-round effects and interrupt a price-wage spiral.

Q: What do you think the new forecasts will look like?

A: Oil futures are above the level seen in March, but below the adverse scenario. Gas prices are around the March levels. The interest rate path is similar. PMIs for May indicate a weaker economy. That all points in the direction of a little bit more inflation and a little bit less growth.

Q: Given weaker demand, less fiscal support and a smaller shock than in 2022, why is the right response to act sooner rather than wait for harder evidence of second-round effects?

A: There are many signals that inflation is raising its head. It is true that the demand environment is not as strong as before, fiscal measures are not as active as before, and the economy is weaker, even if it has been more resilient than we had expected before the shock. But the psychology is important. Households and companies still remember the previous inflation episode. Wage growth had been declining from higher levels, but workers had still been asking for more compensation. All of this complicates how quickly an energy price shock may become entrenched in the economy. Therefore, the time available to react is shorter. But once you react more quickly, you can then be more consistent and more gradual in your decisions. The other difference is that we are now talking about an oil price shock, with some indirect effects on other markets. But in terms of the magnitude of the shock, it is still not like 2022.