The European Central Bank can reduce borrowing costs once it’s sure that consumer-price gains are headed back to the 2% target, according to Governing Council member Martins Kazaks.
“This decision right now to keep rates at current levels is to be really convinced inflation won’t rise again,” Kazaks told Latvia’s TV3 Wednesday, citing upside risks including the Middle East tensions and the war in Ukraine.
“We have to be convinced that inflation has been beaten — then we can step by step lower rates,” he said, suggesting the second half of next year may be feasible to begin the process of cutting.
Less than than a month after pressing pause on an unprecedented run of hikes to tame inflation, ECB officials are pushing back against talk of any imminent rate reductions. Investors and analysts see the deposit rate being kept at its current level until mid-2024, though a possible recession in the euro area is challenging their confidence in that outcome.
Kazaks, who heads Latvia’s central bank, said price growth in his homeland will probably ease to below 2%.
“One thing is to push inflation lower; another is to be convinced inflation won’t rise again,” he said. “That’s why there’s this cautiousness.”
