ECB policymaker Kazaks signals move toward restrictive rates

The case for further tightening is solidifying, according to the Latvian central bank governor. He emphasized that the bank can afford a measured, stepwise approach, avoiding any impulsive jumps while remaining vigilant against fuel costs seeping into broader wage and price structures. By moving incrementally, the ECB intends to stay well-positioned to navigate the current economic climate without unnecessary volatility.

The core of the concern lies in the closing output gap, which heightens the risk that companies will pass rising energy expenses directly to consumers. While inflation remains in a range that businesses have largely absorbed, Kazaks cautioned that this tolerance will evaporate if the cost of everyday essentials continues to climb. With the ECB forecasting inflation to hit 3.6% by the end of the year, the pressure to act persists, even as negotiated wage growth currently trails behind those rising costs.