Kazaks from the ECB said that stronger increases in interest rates may not end after the current corrections

The European Central Bank may not be done with a big interest rate hike after surprised with an initial half-point hike last week, according to Board of Governors member Martins Casax.

"I wouldn't say it was the only frontal load," Kazax, one of the ECB's most hawkish officials, said in an interview in Frankfurt. "I would say that the rate hike in September should also be quite significant."

Economists and markets are not quite on the same page about what will happen next with the deposit rate.

Note: No ECB meetings in August, November

The euro wiped out losses against the dollar, rising to an intraday high.

The ECB's challenge is to rein in record inflation in the eurozone, which is already more than four times the 2% target, despite not peaking. In Latvia, where Kazaks heads the central bank, it is almost 20%.

Policymakers began their first hike in more than a decade on July 21, ending eight years of borrowing costs. Asked about the possibility of an even bigger step next time at 75 basis points, as the Federal Reserve implemented in June, Kazaks urged officials to remain impartial.

"Given the uncertainty, given the inflation dynamics, given the risks of persistence, I would say that, of course, we should be open to discussions," he said on Friday, stressing that the ECB should not just follow the Fed.

Kazaks declined to talk about possible scenarios for the October meeting, but said he "would have no serious objections" to recent market expectations of a 150 basis point tightening by June next year. Since then, those rates have been reduced to about 130 basis points.

"There are significant downside risks that are not part of the baseline scenario," he said.

Chief among them is energy supplies from Russia, which the Kremlin has restricted in response to Western sanctions over its invasion of Ukraine and which many politicians believe could be cut off entirely.

The prospect of natural gas rationing this winter crushes an already shaky confidence. Along with protracted supply chain disruptions and the fastest inflation since the introduction of the euro, recession fears are growing.

"Russia is using energy and food supplies as a political tool," Kazax said, warning that further interference in energy supplies is possible even after partial flows through a key pipeline to Germany resume after maintenance.

The deterioration of the forecast caused damage to the euro, which recently fell below parity against the dollar for the first time in 20 years.

"We don't focus on the exchange rate, but the exchange rate is an important element driving inflation," Kazax said. "A euro that is too weak is a problem."