ECB Official Signals Possible Further Rate Hikes Amid Persistent Inflation

Martins Kazaks, a member of the European Central Bank’s Governing Council and governor of the Bank of Latvia, indicated on Friday that the ECB might be compelled to lift interest rates to levels that constrain economic activity. His remarks came as part of efforts to rein in persistently elevated inflation rates.

Energy Shock Proves More Enduring Than Expected

Kazaks spoke in Dublin, where he is attending a meeting of European finance ministers and central bank governors. According to Bloomberg, he stated that the energy shock stemming from the war in Iran has proven more durable than initially anticipated. He emphasized that the ECB must do everything within its power to prevent spillovers from rising oil and gas prices into broader inflation across other sectors.

Restrictive Policy Seen as Likely Path Forward

The official described restrictive monetary policy measures as the “most likely outcome” if the economy continues evolving along the baseline scenario. He added, “The stronger the economy, the easier it is to raise interest rates,” pointing specifically to Germany’s unexpectedly robust economic growth in the second quarter.

The ECB has raised interest rates twice since last June. Officials are now deliberating additional steps required to bring inflation down to the target rate of 2%.

Deposit Rate Could Reach 2.75%

A further quarter-point increase would lift the ECB’s deposit facility rate to 2.75% — a level widely viewed as restrictive for the eurozone economy. Kazaks clarified: “There is nothing magical about 2.5%,” and affirmed that the ECB would certainly raise rates beyond that threshold if circumstances warranted.