Kazimir Urges ECB to Keep Guard Up on Lingering Inflation Risks

Peter Kazimir, governor of the National Bank of Slovakia and governing council member of the European Central Bank (ECB), at the Bank of Korea International Conference in Seoul, South Korea, on Thursday, May 30, 2024. The ECB last month bolstered expectations that interest rates will be cut in June as inflation recedes. Photo by SeongJoon Cho /Bloomberg

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(Bloomberg) — The European Central Bank must be alert to upside inflation risks and resist the temptation to fine-tune policy, according to Governing Council member Peter Kazimir.

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The Slovak official pointed to supply-chain uncertainty, energy costs, and surprisingly strong underlying price pressures and earnings gauges in arguing that officials “must recognize the presence of lingering upside risks.”

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“The mosaic of data contains elements that should serve as a reminder of why letting one’s guard down wouldn’t be advisable at this stage,” Kazimir said in an op-ed on the Slovak central bank’s website. Still, he reiterated the ECB’s mantra that policy is in a “good position to face the challenges of the current turbulent environment.”

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The ECB held interest rates at 2% last week after the economy largely performed in line with expectations. President Christine Lagarde said inflation is close to the 2% target — even as risks warrant close monitoring.

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They relate primarily to the trade outlook for the 20-nation euro zone. While a deal with the US has alleviated some uncertainty, firms remain vulnerable — and the latest tussle between Washington and Beijing has highlighted how quickly things can change.

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It’s against that backdrop that Kazimir cautions against too much activism — even as near-term projections show price pressures falling short of the ECB’s goal.

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“We should not try to over-engineer our policy and fine-tune inflation dynamics to perfection with small moves,” he said. “In trying to be overly precise, the central bank could itself become a source of volatility rather than the pillar of stability our economy needs.”

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In advocating a steady-hands approach, Kazimir joins officials including Latvia’s Martins Kazaks, who warned last week against “jumpy” responses to data as they arrive. “The steadiness of our policy decisions is an advantage,” he said.

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Kazimir argued that the ECB will “remain vigilant” to both upside and downside inflation risks, and is prepared to respond if needed.

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“‘Data-dependent’ means keeping all options open,” he said. “It means our next move — when it comes — could, in principle, be in either direction, depending on the signals we receive.”

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