Governing Council member Peter Kazimir stated that the ECB must implement at least one additional rate increase to prevent inflation risks from spiraling out of control. In a blog post published Monday, he argued that even modest progress in the Middle East conflict would not alter the requirement for stricter monetary policy. He further noted that if the conflict escalates, additional rate increases would be necessary.
"I remain of the view that at least one more hike will be needed as part of our measured adjustment to inflation risks," Kazimir, who serves as governor of Slovakia's central bank, said. "This is warranted even if the situation improves somewhat."
"Should the situation escalate, with the price pressures becoming stronger and more persistent, we will need to tighten more over the next quarters than is currently expected," he added.
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Financial markets have fully priced in a 25‑basis‑point rate increase for September, following oil's surge past $100 per barrel last week. A majority of economists share this expectation. Market participants did not foresee any rate change at the July gathering.
"We did not surprise the markets in July, and we should not surprise them in September," Kazimir said. "Incoming data and geopolitical developments would need to be very convincing for me not to advocate another hike in September."
The ECB has already raised its key interest rate by a cumulative 4.25 percentage points since July 2022, bringing it to a 22-year high. However, the recent spike in oil prices - driven by geopolitical tensions in the Middle East - has revived fears that inflation will remain stubbornly above the bank's 2% target. Kazimir's insistence on further tightening aligns with the hawkish wing of the Governing Council, which argues that a premature pause could allow price pressures to become entrenched. Meanwhile, the euro zone economy is struggling with weak growth, making the balancing act between fighting inflation and supporting economic activity increasingly delicate.
So‑called second‑round effects "rarely announce themselves" and "often form quietly," he said. "By the time they are fully visible, they are costly to reverse. Our task is to act before that point, not after."
The central bank had paused in July, but the latest spike in oil prices - driven partly by the Middle East conflict - has reignited inflation concerns. Kazimir's comments align with those of other hawkish members who argue that policy must remain restrictive until price pressures are firmly under control. Lagarde had already warned that the full impact of the energy shock was still working its way through the economy, a view Kazimir reinforced in his blog post.
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