European Central Bank (ECB) Governing Council member and Bank of Latvia Governor Martins Kazaks said the ECB is fully prepared to take further action if needed to bring inflation back to the 2% target from its current “slightly worrying” level.

In a media interview, Kazaks noted that while consumer price growth is “hovering around 3%,” it is still too early to prejudge the outcome of next month’s meeting. Markets currently see it as almost a certainty that the ECB will raise the deposit rate by 25 basis points in September, which would mark another tightening move following the June hike.

Kazaks emphasized that the ECB is fully prepared to act if necessary to bring inflation back to the 2% target within a reasonable timeframe. The ECB will meet again in September, when it will assess the latest data and economic outlook before making a decision. He acknowledged that, given the current situation, further rate hikes carry both advantages and drawbacks.

Economic Resilience Underpins Tightening Expectations

Market expectations for further monetary tightening stem not only from elevated inflationary pressures but also from the Eurozone economy’s surprisingly steady performance amid the turmoil and uncertainty triggered by the war in Iran.

Kazaks said the Eurozone economy has shown somewhat greater resilience than previously expected. Second-quarter growth was quite strong, and the unemployment rate remains at low levels. Wage growth momentum is gradually moderating, while inflation expectations remain stable near target, suggesting that markets believe the ECB will take necessary action.

However, Kazaks remained tight-lipped about the future policy path, saying only that making predictions would be unwise given how rapidly the situation is evolving. He pointed out that with uncertainty extremely high and interest rates above the effective lower bound, providing forward guidance would be counterproductive.

Policy Outlook

The ECB will hold its next policy meeting in September. Market participants broadly expect another deposit rate increase, extending the tightening trajectory that began in June. However, Kazaks’s remarks suggest that policymakers still want to preserve policy flexibility and avoid locking in a stance prematurely in a highly uncertain environment.

Eurozone inflation remains significantly above the ECB’s 2% target, and policymakers face the challenge of balancing the need to curb price pressures against the risk of excessively dampening economic growth. Kazaks’s comments reflect that the ECB remains highly vigilant about inflation risks while also expressing a degree of confidence in economic fundamentals.