June 23 - Damage inflicted by the conflict in the Middle East will not be removed quickly and the European Central Bank still has additional work to perform, ECB policymaker Peter Kazimir said on Tuesday.
Kazimir described the recent policy move as a pre-emptive step aimed at preventing a spike in energy costs from feeding through into longer-term inflation expectations. The central bank raised interest rates this month for that purpose, and financial markets are pricing in at least one more tightening before year-end - even though energy prices have retreated well below their most recent peaks.
Speaking at a Slovak central bank news conference, Kazimir said: "I think the direction is clear and I think we still have work to do." He added that the decision to lift rates in June has left the ECB in a "very good position" to act again if that proves necessary: "We have created a very good position with the June rate hike decision to be able to react when it is necessary."
When asked about developments in peace talks between the United States and Iran, Kazimir said that, in principle, nothing had changed for him. He emphasized the need to follow incoming data closely, naming June inflation figures specifically, and to remain alert for any signs of secondary effects - that is, broader inflationary pressures that are not yet visible in the data but may be detectable through other signals.
Kazimir's comments underscore two themes. First, the ECB is mindful of how energy price dynamics can influence longer-run inflation expectations. Second, although markets see scope for further tightening this year, the bank is signaling a data-dependent approach: future moves will be determined by whether official statistics and other indicators justify additional action.
Context for markets and sectors
- Energy markets - recent declines in energy prices have eased some upward pressure, but the ECB remains watchful about potential spillovers into inflation expectations.
- Financial markets - traders continue to price in at least one additional rate increase later this year, reflecting persistence in central bank tightening expectations.