BCE Will Not Touch Interest Rates Until War Scenarios Are Clear, Kazimir Says

The European Central Bank (BCE) may have completed its monetary policy easing and should not touch interest rates until the commercial war scenario is clear, said Peter Kazimir, the governor of the Slovak central bank and a BCE member. Kazimir stated that caution will be the priority and that the evaluation of data as it arrives and how it is seen in the medium term will be crucial. He personally believes that interest rates should not be touched until there is more clarity on commercial war scenarios.

The European Central Bank (ECB) has recently indicated a shift in its monetary policy stance, moving towards a more cautious and data-dependent approach. This change was underscored by Philip R. Lane, a member of the ECB's Executive Board, during his speech at the Barclays-CEPR Monetary Policy Forum 2025 [1]. Lane highlighted that while headline inflation has returned to the target, services inflation still requires further attention. The ECB's primary challenge now lies in navigating a volatile environment characterized by high uncertainty about long-standing international trade systems and geopolitical tensions.

The ECB has completed its monetary policy easing, and Lane emphasized the need for a "meeting-by-meeting" approach to decision-making, with no pre-commitment to specific future rate paths [1]. This strategy aims to ensure that any temporary deviations from the inflation target do not turn into longer-term deviations. The ECB's June decision to cut rates by 25 basis points was a reflection of this approach, as it supported the pricing pressure needed to generate target-consistent inflation in the medium term [1].

Governing Council member Joachim Nagel has also signaled a shift towards greater caution in deploying unconventional tools like bond-buying programs [2]. Nagel emphasized the ECB's reluctance to commit to open-ended stimulus and its preference for a "neutral policy rate" that grants flexibility. This approach allows the ECB to assess the situation more thoroughly before making policy decisions. The ECB's focus on data dependency has significant implications for bond yields and fixed-income investors.

Peter Kazimir, the governor of the Slovak central bank and a BCE member, echoed the ECB's cautious stance. Kazimir stated that interest rates should not be touched until there is more clarity on commercial war scenarios. He emphasized the importance of evaluating data as it arrives and how it is seen in the medium term [2].

Investors should be prepared for a period of uncertainty, as the ECB's new approach may lead to fluctuations in bond yields and other financial markets. The ECB's focus on data dependency and flexibility suggests that investors should pay close attention to real-time data, particularly inflation trends, to gauge the risks and opportunities in core European bonds. Investors may also want to consider diversifying into new asset classes, such as blue bonds or sovereign bond-backed securities, as proposed by Lane.

In conclusion, the ECB's shift towards a more cautious and data-dependent policy framework demands discipline from fixed-income investors. The ECB's new stance underscores the importance of monitoring real-time data and adjusting investment strategies accordingly. The ECB's focus on flexibility and exceptional circumstances will continue to shape the euro area's monetary policy landscape, with significant implications for investors and financial professionals.

References:
[1] https://www.ecb.europa.eu/press/key/date/2025/html/ecb.sp250624~6bc6bae5ac.en.html
[2] https://www.ainvest.com/news/ecb-cautious-turn-navigating-european-bond-markets-policy-era-2506/