ECB's Kažimír: “Markets May Still Underestimate” Tightening Required

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Peter Kažimír said on Monday that he increasingly doubts that the monetary tightening already delivered, together with the further increases priced in by markets, will be sufficient to bring inflation back to target, suggesting that additional interest rate hikes will be needed.

In a blog post published on the website of the National Bank of Slovakia, which he heads, Kažimír said the question was increasingly not whether the ECB would need to tighten monetary policy further, but by how much.

"For me, the question is increasingly not whether further action will be needed, but how much more will be required," he said. "Markets may still underestimate what is required."

Kažimír said the ECB's decision to leave interest rates unchanged in October was appropriate, given that previous tightening was still working its way through the economy, but warned that the pause did not mark the end of the tightening cycle.

"By December, we will have new forecasts and more information. That will be our next decision point," he said, adding that the issue was not any single meeting or rate move, but the overall policy path needed to return inflation sustainably to target.

Kažimír pointed to renewed inflationary pressures stemming from persistently high energy prices, rising costs for businesses, a weaker exchange rate and increasing food prices.

"The energy shock shows no sign of fading," he said, noting that energy prices were almost 20% higher than a year earlier.

Although demand and labor market conditions were calmer than during the inflation surge of 2021 and 2022, and wage growth was not keeping pace with prices, Kažimír warned that underlying inflation had never fully settled at desirable levels, even before the latest energy shock.

"The longer this lasts, the greater the risk that higher costs spread through the economy," he said, warning that price pressures and inflation expectations could rise before broader inflation became visible in the data.

He also noted that economic growth had remained resilient despite two interest rate hikes, while fiscal policy was cushioning some immediate price pressures but also supporting demand.

Kažimír acknowledged that inflation risks were tilted to the upside while growth risks pointed downward, but cautioned that weaker economic activity might not be enough to contain inflation if cost pressures and expectations persisted.

"The risks of doing too little are harder to ignore," he said. "We should act before high inflation starts to feel normal."

"Patience has its place in monetary policy. Hesitation has its price," he concluded.