ECB Governing Council member Kazimir: Will raise rates decisively if necessary, but needs time to judge next move.

European Central Bank Governing Council member and Slovak central bank governor Peter Kazimir said the ECB will not hesitate to raise interest rates further if necessary, but it will take time to determine the next move. "We will make each decision when it is needed, and we will not waver when the evidence calls for action," Kazimir said Monday in a column published on the Slovak central bank's website. However, he said ECB officials first need to assess whether the indirect effects of the war-induced surge in energy costs are unfolding as expected, and "whether demand and labor market conditions are already strong enough to generate second-round effects." The ECB raised borrowing costs by 25 basis points to 2.5% last week, its second rate hike since the outbreak of the Iran war, as another rise in oil prices intensified inflation. Although the ECB reiterated that it would not pre-commit to future policy moves, upward revisions to inflation expectations and signs of resilience in euro-area economic growth prompted markets to expect further tightening. Traders are currently betting the ECB will raise rates three more times by October 2027. Kazimir said Monday that markets are "very clear" about how the ECB responds to emerging information, which creates "valuable space for careful observation and judgment." "That allows us to act when necessary," he said, stressing the ECB's flexibility after last week's rate hike. "We should not confuse being open to the next decision with indecision." Inflation remains a "thorn in the side," ECB rate-hike expectations rise Kazimir believes inflation risks are "clearly tilted to the upside." Although stronger-than-expected economic growth is also pushing up inflation, the main source of risk for price increases remains energy. He added that he is increasingly focused on natural gas and electricity. "The longer high energy costs persist, the greater the risk that they seep into longer-term expectations, wages and prices," Kazimir said. Lithuanian central bank governor and ECB Governing Council member Gediminas Simkus said December may be a natural time to reassess the euro-area economy, but energy prices must be closely watched before next month's meeting. "As early as October, we will be able to assess the inflation outlook and judge whether it is deteriorating or improving. I cannot rule out any particular meeting. We will make decisions based on incoming data," he said. ECB President Christine Lagarde also said recently that euro-area inflation will remain high for some time. "The current shock is lasting longer," she said, adding that the Middle East conflict "is still ongoing. We expect volatility and pressure in energy prices to persist, although higher prices also carry the risk of slower economic growth." ECB Governing Council member and Bundesbank President Joachim Nagel said last Friday that the ECB may need to tighten borrowing costs to a slightly restrictive level to control price increases. After last Thursday's rate hike, the deposit rate stands at 2.5%, a level many, including chief economist Philip Lane, consider close to the upper bound of the neutral range. Traders increased bets on an ECB rate hike in October, now seeing a probability as high as 70%, up from just over 50% previously. Jefferies economist Modupe Adegbembo said: "We still lean toward a rate hike in December, or as early as October if energy prices remain high."