ECB's Kazimir says rates must rise again and markets may underestimate the need

European Central Bank policymaker Peter Kazimir said on Monday, November 2, that the ECB will have to raise interest rates again. He argued that further tightening is needed to keep high inflation from becoming entrenched.

Kazimir, who heads the Slovak central bank, also said markets may be underestimating what is needed to quell price pressures.

What happened

Kazimir spoke in Frankfurt. He said the central bank must act again so that elevated inflation does not take hold in the economy. He stressed that the size of the next move is uncertain.

He described a path-based approach rather than a one-off adjustment. In this view, policy would respond step by step to the inflation outlook instead of delivering a single decisive change.

The ECB kept rates unchanged at its meeting last week. Since then, a number of policymakers have made the case for adding to the two rate hikes already delivered. Kazimir's remarks are part of that wave of comments.

Why it matters

The comments show that the debate inside the ECB has moved toward more tightening. A hold at the last meeting did not signal the end of the cycle for several officials. The decision to pause and the call for more action can exist side by side, because a pause says little about the final level of rates.

Christine Lagarde, the ECB President, has downplayed the risk that inflation will spread beyond energy. She has also said the ECB's direction of travel is "clear". Kazimir's remarks add a more cautious view on how persistent price pressures could prove.

For households and companies in the euro area, the message is that borrowing costs may keep rising. Central banks usually act on inflation that is broad and persistent, and Kazimir's focus on entrenchment points to that concern. His stress on a path, not a single step, also suggests that one move may not settle the question.

Market impact

The available information does not report price moves in euro-area bonds, the euro or equities in response to the remarks, so no market reaction is described here. The main market message comes from the warning itself: Kazimir said investors may be underestimating the scale of tightening that will be required.

That statement bears on how rate expectations are priced. If policymakers keep arguing for further increases, the path of short-term euro rates stays a central question for fixed income markets. The same applies to borrowing costs across the euro area, which follow the policy rate.

The gap between the two voices also matters for markets. Lagarde has played down the risk that inflation spreads beyond energy, while Kazimir stresses the danger of entrenchment. Investors will read both messages to judge how far the ECB is ready to go.

What to watch next

Attention turns to further comments from ECB policymakers after last week's decision. The key questions are how many officials join the case for another increase and how they describe its size. Kazimir himself said the extent of the next step is uncertain, so any more detail from colleagues will draw interest.

Lagarde's message that the direction is clear, set against Kazimir's call for a path-based approach, frames the next stage of the debate. Incoming inflation data will show whether price pressures remain confined to energy or broaden. That distinction sits at the center of the disagreement over how much more tightening the ECB may need.