ECB’s Kazaks calls for rates to move into restrictive territory

Several European Central Bank Governing Council members this week left the door open to another interest rate increase at the October 29 meeting, reinforcing a hawkish tone that has kept markets pricing further tightening even as officials insist they see no wage-driven inflation spiral.

'Every Meeting Is a Live Meeting'

Ireland's Gabriel Makhlouf told Bloomberg Television on Thursday that policymakers cannot rule out a rate hike next month. "At a time of uncertainty, every meeting is a live meeting for the European Central Bank," he said. "You can't rule out anything that might happen in future meetings, nor can you rule them in." Makhlouf added that while he sees no concerning second-round effects from the energy shock triggered by the war in Iran, "the risks to inflation remain on the upside."irishexaminer

Latvia's Martins Kazaks went further, arguing in a separate Bloomberg interview in Dublin on September 18 that the ECB should move into openly restrictive territory. "Wading into restrictive territory, in my view, would be appropriate," Kazaks said, noting that the euro area's output gap is forecast to close next year, which could strengthen the pass-through from higher energy costs into wages and prices. In a Reuters interview four days earlier, Kazaks had rejected the idea that 2.50 percent — the upper end of the ECB's neutral range — represents a ceiling for rates.streamlinefeed

Hawks Dominate, Doves Stay Quiet

Finland's Olli Rehn, typically one of the Council's more dovish voices, struck a balanced tone but did not push back against market expectations of further hikes. Speaking at an OMFIF event in London, Rehn said the Middle East energy shock has not yet spread into broader prices or wages and that second-round effects remain absent. ING analyst Francesco Pesole noted that Rehn's restraint "confirms the dovish camp is weak at the moment."fxstreet+1

All three officials said they see no evidence of a price-wage spiral, a point ING flagged as "somewhat inconsistent with the prevailing hawkish narrative." Yet none used the absence of second-round effects to argue against further tightening. Markets now price at least three more quarter-point increases over the next 12 months.investing+1

Caught Between Two Hiking Central Banks

The ECB raised its deposit rate by 25 basis points to 2.50 percent on September 10, its second hike of 2026. Days later, the Federal Reserve lifted its benchmark rate to a 3.75–4.00 percent range, its first increase since July 2023, with the dot plot signaling further moves ahead. The EUR/USD pair fell from near 1.1610 after the ECB decision to a seven-week low around 1.1460 following the Fed's move, underscoring that the dollar side of the equation currently carries more weight.tradingnews

ECB President Christine Lagarde is scheduled to speak later on Friday, though analysts expect little new guidance so soon after last week's decision. Euro-area inflation stands at 3.3 percent, well above the ECB's 2 percent target, and oil and natural gas prices continue to climb on the back of the Middle East conflict.fxstreet+1