European Central Bank policymaker Mārtiņš Kazāks, who also serves as governor of Latvia's central bank and sits on the ECB's rate-setting Governing Council, said the ECB's next decision in September will be based on incoming economic data, while noting that there are both pros and cons to raising interest rates further. The remarks come after more than a year of consecutive rate increases — the ECB's fastest tightening campaign since the euro's creation — launched to rein in inflation that surged to multi-decade highs across the euro area.

Kazāks said inflation expectations remain anchored close to the ECB's target of 2%, a sign that households, businesses, and financial markets continue to have confidence in the central bank's commitment to price stability. That anchoring matters: once higher inflation becomes built into wage- and price-setting behavior, returning it to target typically demands costlier policy action.

He also highlighted that wage growth is gradually slowing, suggesting that one of the key domestic drivers of inflationary pressure may continue to moderate in the coming quarters. The ECB has repeatedly pointed to wage dynamics as a key factor in assessing whether inflation can settle sustainably around its target, with officials wary that catch-up pay deals aimed at recovering purchasing power lost to the inflation surge could keep services prices elevated even as energy effects fade.

At the same time, he acknowledged the uncertainty surrounding the economic outlook, arguing that forward guidance has become counterproductive in the current environment. With geopolitical risks, energy markets, and global growth prospects all subject to rapid change, he suggested that policymakers should retain maximum flexibility rather than pre-commit to a specific policy path.

While Kazāks emphasized a data-dependent approach, markets have already made up their mind, pricing in a 94% probability of a rate hike at the September meeting.

On the balance of risks, Kazāks indicated that although additional tightening could help ensure inflation returns fully to target, it could also weigh on economic growth — a trade-off that suggests there is not much appetite for more rate hikes.

Overall, his remarks struck a more cautious tone compared with his more hawkish comments in previous months. What happens next will hinge on the flow of data he pointed to: fresh inflation prints and wage figures due before the meeting, together with the updated staff economic projections the ECB publishes each September, will frame how the Governing Council weighs that final trade-off.