Finance
ECB should sit tight on rates amid uncertain war fallout, kazaks says
Published by Global Banking & Finance Review®
Posted on March 3, 2026
2 min readLast updated: March 3, 2026
Quick Summary
ECB policymaker Martins Kazaks advises holding interest rates steady amid the uncertain fallout from the Iran war, noting that while inflation risks exist, economic activity could slow—making caution prudent through the ECB’s March 18–19 meeting.
ECB Expected to Hold Interest Rates as War Fallout Creates Uncertainty
ECB Policymaker Comments and Market Reactions
ECB Urged to Maintain Steady Rates Amid Uncertainty
FRANKFURT, March 3 (Reuters) - The European Central Bank should "sit tight" and keep interest rates steady for now as the impact of the war in Iran remains uncertain, ECB policymaker Martins Kazaks told Reuters on Tuesday.
Traders have started placing some bets on an ECB rate hike this year as disruption to the flow of oil and gas from the Gulf, as well as wider trade snags, threaten to push up inflation in the euro zone.
Potential Inflation and Economic Activity Impact
Kazaks, the Latvian central bank governor, said the conflict may boost inflation but could also depress activity, meaning the euro zone's central bank should wait for the fog of war to clear before acting.
"We should sit tight," he said in a phone interview, adding the ECB may come up with some scenarios about how the war could affect the economy at its next rate meeting on March 18-19.
"But I don't see that we need to rush to do something with policy rates," Kazaks added.
Market Expectations and Policy Outlook
Current Rates and Market Pricing
CURRENT RATES 'APPROPRIATE,' KAZAKS SAYS
Money markets price in around a 40% chance of an ECB rate hike by year-end, with bets surging after higher-than-expected inflation data for February on Tuesday. They were pricing in a possible cut only last week
Policymaker Perspective on Rate Changes
Kazaks said the latest reading would keep policymakers "in a cautious mood" and formed a higher basis on which the energy shock would build. But he played down imminent hikes.
"Current rates are appropriate based on what I am seeing," he said. "Markets were pricing in a cut not so long ago. It's within the high uncertainty interval, I see no need to rush."
Still, he said the ECB should be prepared to move rates in either direction depending on "how inflation develops, how high it is, what are the second-round effects and how persistent it becomes, and if this feeds through into inflation expectations."
"At the end of the day there are opposing forces coming from this shock and it depends on which one is stronger," Kazaks said.
Reporting Credits
(Reporting by Francesco Canepa; Editing by Bernadette Baum)
Key Takeaways
- •Kazaks urges the ECB to “sit tight” on rates as impact of Iran war on inflation and growth remains unclear.
- •Traders now price a roughly 40–50 % chance of a rate hike by year‑end, following February’s surprise inflation uptick.
- •ECB chief economist Philip Lane also warns a prolonged Middle East conflict could trigger inflation spikes and output declines, reinforcing a cautious policy stance.
Frequently Asked Questions about ECB should sit tight on rates amid uncertain war fallout, Kazaks says
1Why does the ECB plan to keep interest rates steady?
Kazaks stated that the uncertain fallout from the war in Iran means the ECB should wait before making changes to interest rates.
2How could the war in Iran affect the euro zone economy?
The conflict could boost inflation due to energy disruptions, but it may also depress economic activity, making outcomes uncertain.
3What is the market expectation for ECB rate changes in 2024?
Money markets are pricing in about a 40% chance of a rate hike by year-end, especially after higher-than-expected February inflation data.
4What was Kazaks’s view on immediate rate hikes?
Kazaks said the current interest rates are appropriate and does not see a need to rush policy changes amidst high uncertainty.
5What factors will determine the ECB’s next rate decision?
Kazaks indicated the ECB will monitor inflation levels, second-round effects, and inflation expectations before deciding.
