In an interview over the weekend, ECB Governing Council member Martins Kazaks, chief of Latvia’s central bank, sought to temper market expectations regarding rate cuts. He emphasized that any anticipations of rate cuts in the spring or early summer are “not really consistent with the macro scenario” that is currently envisioned.

Kazaks underscored his contentment with the present rate levels, expressing that they stand aptly. He clarified, “While I’m comfortable with where rates are at the moment, if necessary we will take the right decisions.” However, he declined to affirm the notion that the rates have reached their peak, thus leaving room for more tightening based on future economic developments.

Stressing the urgency to effectively address the inflation issues in a decisive manner, he said, “I would like to see that we solve inflation in one attempt, that we are not forced to come back,” to avoid a scenario necessitating “larger interventions” down the line.

Separately, another Governing Council member Yannis Stournaras, Greek central bank head, said, “I would have preferred to hold rates last week. But there were arguments in favor of both outcomes — hiking and holding — so I’m fine with the decision we took.”

Last Thursday saw ECB raising the interest rates by 25bps, marking the tenth consecutive hike, thereby elevating deposit rate to a record 4%. Additionally, ECB signaled interest rates have probably peaked in the currency cycle.

ECB President Christine Lagarde said in a Nikkei interview, “we are determined to tame inflation, to bring it back to our 2% medium-term target in a timely manner.” She acknowledged that “we have made a sizable adjustment already. But we still have more ground to cover”.

Highlighting the importance of data, Lagarde said, “Our reaction function will be anchored in the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, and this will dictate our decisions going forward.”

She emphasized ECB’s focus on headline inflation as the critical measure to ensure price stability. “That’s our thermometer, that’s what we are committed to doing,” she stated.

However, Lagarde also pointed to the relevance of additional inflation measures. “Core” inflation is one such measure, but others exist, such as those that exclude more volatile items or focus more on domestic inflation pressures.

She explained, “It’s to arrive at the ‘heart’ of inflation, the most persistent element in those price indexes that can help us understand where headline inflation is likely to settle in the medium term.”

Lagarde cautioned that significant upside risks to inflation outlook still exist, and the path of inflation remains uncertain. Therefore, she stressed the need for the ECB to be “extremely attentive to those potential risks.”

Full interview transcript of ECB Lagarde here.