ECB President Christine Lagarde, while speaking at the ECB Forum today , emphasized that the bank”s job was far from over. She reiterated that “barring a material change to the outlook, we will continue to increase rates in July.”

As ECB treads further into restrictive territory, Lagarde indicated that the central bank would be paying close attention to two aspects of its policy – the “level” of rates and the communication around future decisions, particularly in terms of “length” of time rates are expected to stay at that level.

She underscored the presence of two main uncertainties affecting the “level” and “length” of the bank”s interest rate policies.

The first is the uncertainty about inflation persistence, which makes the peak level of rates state-contingent. The second involves the uncertainty around monetary policy transmission, an issue heightened by the fact that Eurozone has not experienced a sustained phase of rate hikes since the mid-2000s and has never witnessed such swift rate rises.

Full speech of ECB Lagarde here.

ECB Governing Council member Martins Kazaks expressed concerns about the persistent high inflation, indicating that an economic slowdown may not be enough to counter it. He also pushed back against market expectations of an ECB rate cut in the first half of next year.

Kazaks stated, “The softness of the economy is unlikely to deal with inflation, which is still very high, with strong risks of persistence.”

Further suggesting the need for rate hikes beyond July, Kazaks said, “In my view, we will still need to raise rates and I don’t think that in July we’ll be comfortable enough to say: ‘we’re done’. I think rates will need to be raised past July but when and by how much will be data-dependent.”

Highlighting the divergence between his stance and market sentiments, he remarked, “The major problem with market pricing is the expectation of rates coming down so quickly. In my view, it’s wrong and the reason is that the market must be pricing in a different macro scenario with inflation coming down much more quickly.”

His views on potential rate cuts were very clear. Kazaks sees the need for rate cuts only when “it becomes quite certain that inflation is about to start significantly and persistently undershooting our target of 2%. And not at the end of the forecast period but towards the middle of the forecast period.”

ECB Governing Council member Pablo Hernandez de Cos conveyed his anticipation of another interest rate hike. He underscored that ECB’s decisions would continue to rely on key data and inflation outlook.

He stated today, “If the central scenario of our forecasts published by the ECB last week materialises, we will also have to raise 25 basis points again in July.” However, “beyond that it is not appropriate to make any forecasts.”

De Cos highlighted the essential role of key data and inflation dynamics in shaping ECB’s decisions. He added, “we will continue to take our decisions depending on the data and, in particular, on the aggregate assessment of the inflation outlook, the dynamics of underlying inflation.”