NextFin News - European Central Bank Governing Council member Mārtiņš Kazāks is signaling that the ECB does not need to rush into a string of interest-rate hikes, even after the central bank resumed tightening in June and warned that the Middle East war is still pushing inflation higher. The message is not that the ECB is finished, but that it should move deliberately: the next step may depend on how much of the current inflation shock is temporary and how much leaks into wages, services and longer-term expectations.
The ECB’s own June 11 statement set the framework. It raised the three key interest rates by 25 basis points and said it would stay data-dependent, meeting by meeting, without pre-committing to any particular path. That stance matters because the latest official projections show a policy problem that is real but not one-dimensional. Inflation is still above target in the near term, yet the growth outlook has weakened as higher energy prices, lower real incomes and softer confidence hit demand across the euro area.
That is the backdrop for Kazāks’ warning against “multiple hikes” in a rushed way. It is also why the remark lands as more than a casual dovish aside. The ECB is trying to keep inflation expectations anchored while avoiding the mistake of tightening so fast that it amplifies the growth hit already coming from the war-driven energy shock. Markets have largely understood that distinction, with German 10-year Bund yields recently around 2.84%, near three-month lows, rather than pricing a full-scale repricing higher across the curve.
The official forecast picture is enough to keep the ECB under pressure. In the June baseline, the central bank sees headline inflation averaging 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Core inflation, excluding energy and food, is forecast at 2.5% in 2026 and 2027 and 2.2% in 2028. Growth is projected at 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028, with the 2026 and 2027 forecasts revised down because the war is weighing on commodity markets, real incomes and confidence. That mix explains why policymakers can sound alert on inflation without sounding eager for a rapid hiking cycle.
The ECB Still Wants Optionality, Not a Pre-Scheduled Hiking Sprint
Kazāks’ warning fits the ECB’s current communication strategy: keep the door open to more tightening, but avoid language that commits the bank to a sequence of consecutive hikes. That distinction is important because the policy debate is shifting from “does the ECB need to act?” to “how quickly should it act if the data stay uncomfortable?” The answer is more nuanced now than it was when inflation was being driven by a broad-based post-pandemic price surge. The current shock is more uneven. Energy is doing much of the damage, while weaker demand and softer confidence are pulling the other way.
The ECB’s June statement made that tension explicit. It said the war in the Middle East is generating inflation pressures, that the decision to raise rates was robust across scenarios, and that future decisions will depend on the inflation outlook, the risks around it, underlying inflation dynamics and the strength of monetary policy transmission. In practice, that means the ECB wants time to see whether the energy shock feeds into second-round effects or fades before it reaches the broader price basket.
That is where Kazāks’ message carries weight. If the ECB were convinced that inflation persistence had broadened materially, talk of multiple hikes would make sense. But the official projection set does not point to an economy that can absorb aggressive tightening without cost. The central bank’s own estimates show inflation above target in the near term and growth below trend, a combination that argues for caution in timing even if the direction of travel remains upward for rates.
“We will closely monitor the situation and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.”
That sentence from the ECB’s June 11 press conference is the clearest institutional response to Kazāks’ comments. The bank is not declaring victory over inflation, but it is refusing to lock itself into a sequence. For markets, that means every new inflation print, wage reading and energy move matters more than any broad promise about the next three meetings.
The Inflation Shock Is Real, but It Is Not the Same Kind of Shock As 2022
The strongest argument against rushing is that the current inflation episode is not a clean replay of the last one. The ECB has said the Middle East war is lifting inflation by pushing up energy prices, but it has also said the same shock is lowering real incomes and weighing on confidence. That is a classic policy trap: the bank faces a price shock that is also a growth shock, so a blunt response risks overshooting before the full effects are visible.
The central bank’s Economic Bulletin put numbers on that trade-off. In its baseline, headline inflation is expected to average 3.0% in 2026, then ease to 2.3% in 2027 and 2.0% in 2028. Inflation excluding energy and food is expected to average 2.5% in both 2026 and 2027 and 2.2% in 2028. At the same time, economic growth is projected to average 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028. The 2026 and 2027 growth forecasts were revised down because of the war’s effect on commodity markets, real incomes and confidence. That is not a backdrop for a central bank sprint.
The second-quarter Survey of Professional Forecasters shows the same tension from another angle. Respondents expect headline HICP inflation of 2.7% in 2026, 2.1% in 2027 and 2.0% in 2028. Core HICP expectations stand at 2.2% in 2026 and 2027 and 2.1% in 2028. Longer-term expectations remain at 2.0%, which is crucial because it suggests that credibility is intact even though near-term inflation is above target. In other words, the ECB is still fighting a current inflation problem without yet seeing a lasting de-anchoring of expectations.
That is why Kazāks’ point about pace matters. If expectations were breaking, the ECB would need to move more aggressively. But if the shock remains concentrated in energy and the growth hit broadens, then multiple hikes in quick succession could do more damage than good. The institution’s own numbers make that trade-off plain.
“The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area.”
Markets Are Pricing Caution, Not Panic
Fixed-income markets have so far validated the idea that the ECB will proceed carefully. German 10-year Bund yields were recently around 2.84%, near three-month lows, which suggests investors are not pricing a forced acceleration in ECB tightening. The curve is behaving more like a market that expects policy to remain restrictive enough to preserve anti-inflation credibility, but not so aggressive that it undermines the growth outlook or triggers a large repricing in long-dated yields.
That market setup is important because it shows the ECB still has room to communicate without shocking investors. If Kazāks were signaling a stronger likelihood of multiple hikes, Bund yields would likely be under more upward pressure. Instead, the market seems to be reading the ECB as a central bank that may still tighten if needed, but only after it sees whether the present shock is persistent enough to warrant more than a cautious step-by-step approach.
The recent Bund move also helps explain why Kazāks’ comments matter beyond rhetoric. Rate expectations influence borrowing costs, mortgage pricing, bank lending and the broader euro-area financial backdrop. A rushed hiking cycle would tighten those conditions quickly. A measured approach preserves more optionality for policymakers and more stability for the market.
The euro has a similar dynamic. A slower, data-dependent path is less disruptive for the currency than a rapid series of hikes, especially when growth is soft. But if the ECB stays credible on inflation, the currency can still benefit from a policy stance that keeps real rates from falling too far behind the inflation picture. For now, the market is not demanding a hawkish sprint. It is pricing a central bank that is trying to stay credible without overcommitting.
What Kazāks’ Message Means for the ECB’s Next Move
The implication is straightforward: the ECB is not shutting the door on further tightening, but it is signaling that the threshold for a rapid sequence of hikes is high. Kazāks’ warning against multiple hikes in a rushed way suggests that policymakers want more evidence on how much of the current inflation pulse is temporary energy pass-through and how much is becoming embedded in wages and services. That keeps the next move conditional rather than automatic.
For the broader market, the key question is whether energy prices continue to feed through to inflation and whether that leads to a broader revision in the ECB’s forecasts. The next inflation prints, wage data and comments from Governing Council members will matter because they will show whether the current shock is evolving into a persistence problem or fading into a temporary overshoot. If the data stay hot, the ECB can tighten again. If growth weakens faster than inflation broadens, patience becomes more defensible.
The lesson from Kazāks’ line is not that the ECB is easing up. It is that the ECB is resisting the temptation to turn a complicated shock into a simple hiking script. The bank still needs to defend its 2% target, but it also has to avoid confusing resolve with speed. That is the real policy distinction in this phase of the cycle.
The market should read the message clearly: the ECB is willing to move, but it is not willing to sprint through multiple hikes before the data force its hand.
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