ECB’s Kazaks sees growing case for more tightening

By the Editorial Team · Tuesday, September 15, 2026

ECB policymaker Martins Kazaks indicated that interest rates may need to rise further beyond the current 2.5% level to counter inflation pressures exacerbated by higher fuel costs linked to the Iran conflict. This suggests the central bank is prepared to implement additional gradual rate hikes to manage inflation risks while carefully monitoring the eurozone economy's near-full capacity conditions.

The European Central Bank (ECB) may need to continue raising interest rates gradually to address inflation pressures heightened by rising fuel costs linked to the conflict in Iran, according to ECB policymaker Martins Kazaks. Kazaks, who is also the governor of Latvia’s central bank, spoke about the outlook following the ECB’s decision last Thursday to increase its key interest rate to 2.5% from 2.25%, marking the second hike this year.

Kazaks noted that the recent escalation in energy prices, driven in part by geopolitical tensions, posed a risk of further inflationary pressure as higher fuel costs could eventually translate into increased wages and broader price rises. He emphasized that while 2.5% is considered the upper boundary of what the ECB characterizes as a neutral interest rate—that is, neither stimulating nor restraining growth—it should not be viewed as a firm ceiling. “Interest rates may need to wade into restrictive territory,” he said, indicating that rates could climb beyond the current level if necessary.

Eurozone inflation was measured at 3.3% in August, with expectations for it to rise further over the coming months. Kazaks suggested that this trend warranted a cautious but deliberate approach to further monetary tightening. He declined to specify whether the ECB would move again as early as October but expressed confidence that any additional hikes could be implemented “stepwise” and “without rush.” He attributed this measured stance to the ECB’s prior policy decisions, which have so far equipped it to respond flexibly to evolving economic conditions.

Kazaks highlighted that the eurozone economy is operating near full capacity, which raises the potential for increased pass-through of rising input costs to consumer prices. “The output gap is closing, which means that pass-through to prices and wages may strengthen,” he said, describing this as an upside risk for inflation.

The ECB’s move to lift interest rates reflects its ongoing effort to anchor inflation expectations amid uncertainty caused by external shocks such as the Iran conflict. Analysts and market participants remain attentive to the ECB’s future actions, balancing concerns over persistent inflation against potential impacts on economic growth within the euro area.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.