The ECB member supports market bets on cuts if the data holds

The European Central Bank could continue to cut interest rates across the board, as expected by the market, if inflation continues to fall as expected, ECB Governing Council member Martins Kazaks told Reuters on Friday.

Last week, the ECB reduced its monetary policy interest rate from the highest level in the euro era, but did not promise to follow through with this measure, which was accompanied by reservations about maintaining inflation in the wages and services.

Kazaks said inflation will be unstable and move sideways this year, but he continues to believe it is on track to meet the ECB’s 2% target for next year, justifying further cuts as long as data keeps coming. as required by the central bank.

“Uncertainty remains high, but it is clear that we are on the path to lower inflation,” Latvia’s central bank governor said in an interview on the sidelines of a conference in Dubrovnik, Croatia.

“We can remove some restrictions, but we need to maintain a certain degree of restrictions and hold meetings based on the data,” he said.

He expressed comfort with current market expectations, which call for one or two rate cuts worth 0.25 percentage points each by the end of this year, followed by two more next year.

“Currently, market prices seem reasonable, but there is no autopilot,” Kazaks said.

He added that there are still a number of variables, such as wage growth and whether companies will be able to absorb this increase or whether they will end up passing it on to customers.

“The deal is not done yet and that’s why I would remain relatively cautious,” Kazaks said.

Markets have become more skeptical of the ECB’s ability to cut rates amid stronger-than-expected wage and inflation data last month.

Kazakhs warned against overreacting to “one or two” data points that go against the trend.

“The data was generally in line with our expectations,” he said.

“For the data to show a deviation from the baseline…changes would have to be persistent and considerable,” he said.

Source: Terra

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