ECB Vows to Tackle Slightly Worrying Inflation Amid Eurozone Resilience

The European Central Bank (ECB) is prepared to take further action if needed to bring inflation back down to its target of 2%. This was stated by Martins Kazaks, an ECB Governing Council member and Governor of the Bank of Latvia. Inflation is currently hovering around 3%, which Kazaks described as 'slightly worrying'.

Despite market expectations that the ECB will raise the deposit rate by 25 basis points in September, Kazaks emphasized that it's too early to prejudge the outcome of next month's meeting. The ECB will meet again in September and assess the latest data and economic outlook before making a decision.

Kazaks noted that the Eurozone economy has shown greater resilience than expected amid the turmoil triggered by the war, with strong second-quarter growth and low unemployment rates. However, he also acknowledged that further rate hikes carry both advantages and drawbacks, suggesting that policymakers want to preserve policy flexibility in a highly uncertain environment.

The ECB's next policy meeting is set for September, and market participants broadly expect another deposit rate increase. Kazaks remained tight-lipped about the future policy path, saying only that making predictions would be unwise given how rapidly the situation is evolving.