Interest Rates May Rise Again: NBS Governor Warns of Costlier Energy and Returning Inflation

In brief

• Slovak central bank governor Peter Kažimír says the ECB may need further interest rate increases.
• Energy prices are almost one-fifth higher than a year earlier, and a weaker euro is raising import costs.
• Wages and the labour market remain calmer than during 2021–2022, but he warns against premature optimism.

ECB may need more rate increases

Peter Kažimír, governor of the National Bank of Slovakia (NBS), said the European Central Bank may have to raise interest rates again. He made the remarks on Monday, 2 November, after a meeting of the ECB's Governing Council (Úroky môžu opäť rásť. Guvernér NBS varuje pred drahšími energiami a návratom inflácie – Pravda.sk) (Trhy podceňujú situáciu. Kažimír varuje, že ECB bude musieť opäť zvyšovať úrokové sadzby | Info.sk – info.sk) (Kažimír varuje pred infláciou: ECB možno čaká ďalšia vlna zvyšovania úrokov | oPeniazoch.sk – zoznam.sk) (Kažimír: ECB môže potrebovať ďalšie zvýšenia úrokových sadzieb – teraz.sk). In his view, the question is no longer whether further hikes are needed, but how many will be necessary. He added that financial markets are underpricing the scale of the tightening required.

Energy and currency pressures

Energy prices are almost one-fifth higher than a year ago, according to Kažimír (Hranice trpezlivosti... potrebujeme konať skôr, ako nám vysoká inflácia začne pripadať normálna - Národná banka Slovenska – nbs.sk). A weaker euro against the dollar makes imports more expensive, and food prices have risen modestly. The longer these conditions last, the greater the risk that higher costs spread through the wider economy.

Labour market and wages

Demand and the labour market are calmer than during the inflation surge of 2021 and 2022, the governor said. Wages are not catching up with price growth, and broader price pressures remain contained. He cautioned, however, against declaring victory too early.

Inflation risks point up

Kažimír said inflation risks are tilted upward, while risks to economic growth lean to the downside. Slower growth, he noted, would not necessarily bring inflation down on its own. Pressures often build quietly before they show up in shop prices, which is why he argues for acting earlier rather than waiting.