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European Central Bank Governing Council member Martins Kazaks said policymakers must retain full flexibility in setting interest rates, even as the euro-area economy performs better than expected. Ongoing global uncertainty and inflation risks on both sides, he argued, make forward guidance on rate direction increasingly counterproductive.
Economic resilience amid lingering risks
Speaking a day after the ECB held borrowing costs steady at 2% for a fourth consecutive meeting, Kazaks noted that economic activity in the euro zone has surprised on the upside. At the same time, inflation has proven more persistent than previously anticipated, largely due to continued wage growth that is sustaining domestic price pressures.
Counterbalancing these forces, Kazaks said competitive pressure from China is likely to intensify, potentially weighing on prices and offsetting some of the inflationary momentum generated within the euro-area economy.
Data-driven decisions remain essential
Kazaks stressed that the ECB should continue to operate on a meeting-by-meeting basis, guided strictly by incoming data rather than predefined policy paths. Given heightened uncertainty stemming from geopolitical tensions, trade frictions and global economic shifts, maintaining optionality is, in his view, essential.
Providing explicit signals about the future direction of interest rates at this stage, he warned, could limit the central bank’s ability to respond effectively to changing conditions.
Inflation expectations remain anchored
Updated ECB projections suggest inflation will fall below the 2% target for much of 2026 and 2027, while core economic indicators remain relatively strong. Kazaks said these deviations are modest and do not raise concerns about price stability.
According to him, inflation expectations remain well anchored, and there is currently no indication of risks that could undermine confidence in the ECB’s commitment to its target.
Geopolitical developments could support growth
Kazaks also pointed to the potential economic impact of a peace agreement in Ukraine, noting that its significance would depend on the terms. A fair settlement that ensures Ukraine’s security and reduces the risk of further regional aggression could, he said, provide a meaningful boost to confidence across Europe.
Such an outcome could encourage households to draw down elevated savings, supporting consumption and, in turn, investment and growth across the euro area.
Rates likely to stay on hold
Against this backdrop, most analysts expect the ECB’s deposit rate to remain unchanged at 2% for at least the next two years. With inflation close to target and the economy facing external pressures from tariffs and global conflicts, policymakers see little urgency to adjust borrowing costs.
As International Investment experts report, Kazaks’ remarks underscore the ECB’s shift toward a phase of managed stability. For investors, this signals a prolonged period of predictable monetary conditions, with future policy moves driven strictly by evolving inflation dynamics and geopolitical risks rather than forward guidance commitments.