Peter Kažimír: Endure unease first, then rejoice

It was the right call – and a measured decision – to keep rates unchanged in July. But let me be equally clear: the job is likely not done.

Risks to the inflation outlook – both headline and core – remain tilted to the upside. The renewed escalation of the conflict is a sobering reminder that we cannot dismiss adverse scenarios.

The situation may have looked benign, for a few days. The conflict has no clear end in sight and therefore neither has the uncertainty surrounding energy supplies from the Gulf.

The full inflationary impact of the energy shock has yet to play out. The shock is still unfolding. And the damage done so far is still travelling through the economy — through costs, through margins, and through short-term expectations.

Our primary focus remains on the emergence of persistent indirect effects and, potentially, second-round effects. The latter rarely announce themselves. They often form quietly. By the time they are fully visible, they are costly to reverse. Our task is to act before that point, not after.

That is why I remain of the view that at least one more hike will be needed as part of our measured adjustment to inflation risks. This is warranted even if the situation improves somewhat.

Should the situation escalate, with the price pressures becoming stronger and more persistent, we will need to tighten more over the next quarters than is currently expected.

The July pause is, therefore, a waypoint, not a destination. We are data-dependent and will continue to make decisions meeting by meeting.

We are circumspect but not complacent. We will take measured, appropriate steps — as many as needed — to deliver on our price stability mandate.

A lot can happen in the weeks to come. Incoming data and geopolitical developments would need to be very convincing to do for me not to advocate another hike in September.

We didn’t surprise the markets now, we shouldn’t surprise them in September.