ECB policymaker Peter Kazimir said the central bank had no reason to change interest rates in the coming months, while stressing vigilance over rising inflation risks. He said the economy and prices were growing roughly in line with expectations, but some upward surprises, including a slow moderation in wages, needed to be watched.
Kazimir, a hawkish member of the Governing Council, stressed that the labor market remained tight and growth was slightly stronger, suggesting price pressures may persist. This reinforced market expectations that the ECB was done cutting interest rates, with no further easing expected next year.
He also backed Isabel Schnabel's view that the ECB's next move was more likely to be a rate hike than a cut, but not in the near term. This contradicts the view of some who believe that a stronger euro would lower import costs and spur disinflation.
Kazimir warned that the impact of a stronger euro on inflation could be smaller than expected because firms may not pass on exchange rate changes to consumer prices significantly. He also dismissed concerns that inflation could fall too low next year, attributing it to temporary energy factors.
With a strong labor market and a narrowing output gap, Kazimir stressed that the ECB should not react to small fluctuations in inflation as they could create policy uncertainty. He said monetary policy should bring stability, not overreact to short-term fluctuations.
