In face of high inflation, ECB Governing Council member Martins Kazaks has voiced his belief that further interest rate hikes will be necessary to contain it. His remarks counter market expectations for borrowing costs to be cut as early as next spring, a notion Kazaks has described as “significantly premature.”
He outlined a dual strategy to bring the current inflation rate of 7% back to ECB’s target of 2%. “The first is raising the rates and of course we don’t know where the terminal rate is,” he commented. “Another thing is keeping those rates at elevated and sufficiently restrictive levels.”
Despite concerns about potential economic risks from higher interest rates, Kazaks emphasized that the risk of doing too little to counter inflation was far greater than the risk of over-tightening. “Persistently high inflation is a bigger problem for society than a relatively short and shallow recession,” he warned.
Underlining the importance of effective policy response, Kazaks cautioned, “Failing to contain inflation would be a failure because then the policy response in the second go would then need to be much tighter.”
