Kazaks: Upside Inflation Risks Remain Significant, No Need to Rush Rate Hikes
nashnova research
ECB Governing Council member Kazaks said upside inflation risks still outweigh downside growth risks, but there is no rush to raise rates — what this tells us → the ECB has not changed direction, but is buying judgment time as it enters restrictive territory.
Why does Kazaks say "no rush"?
His core read: inflation forces still dominate in the near term. Oil and gas prices keep pushing consumer-price growth higher.
Yet the ECB is not behind the curve, he stressed. Policy direction is clear; there is enough time to study the data before acting.
This means → "no rush" is not "no hike." He sees the current stance as well-positioned, with no need to front-run.
How does the inflation-vs-growth risk balance look?
Kazaks was explicit: upside inflation risk still exceeds downside growth risk.
But he warned that threats to growth "could manifest in a more non-linear fashion" — in plain terms = if the economy weakens, it may not slide gently; it could drop off a cliff.
The recent government-bond selloff may itself start dragging on real economic activity, making the trade-off between the two sides harder to judge.
Where do other Governing Council members stand?
Belgium's central bank governor Wunsch said this week that "we will probably have to raise rates again." Lithuania's Simkus agreed, citing recent evidence for higher borrowing costs.
The ECB has hiked twice since the Iran war broke out. Inflation now sits near 4%.
This reflects broad internal consensus on the direction — keep hiking. The disagreement is about pace; Kazaks's "no rush" is caution on timing, not a pivot on direction.
French bonds are tumbling — will the ECB step in?
The yield premium investors demand on French government bonds over German ones has hit the highest level since the eurozone debt crisis, fueling speculation the ECB might deploy crisis tools.
Kazaks drew a clear line: monetary policy should not be the fix for France's fiscal problems. Using it as a cure-all "would be extremely short-sighted and counterproductive," he said.
He did leave a door open: if markets turn disorderly, the ECB will act as needed — in plain terms = orderly repricing is not the ECB's problem; a panic-driven stampede is. He urged France to deliver its fiscal-consolidation plan promptly.
Why are minimum reserve requirements suddenly on the table?
Minimum reserve requirements — the floor amount banks must park at the central bank; raising it effectively drains cash from the system — are gaining traction in Governing Council discussions.
Kazaks said if there is a policy case, the ECB should raise them. Benefits: tighter liquidity, support for quantitative tightening, and lower interest costs for national central banks.
Simkus added that the current level is not "set in stone." This means → before the December meeting, this tool could move from talk to action, opening a second tightening channel beyond rate hikes.
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