The European Central Bank has room to cut interest rates possibly two more times this year as inflation remains broadly on the declining path policymakers envisaged, ECB policymaker Martins Kazaks said.
The ECB cut rates for the first time after a record string of hikes in June and markets expect a second move on 12 September as economic growth remains anemic and wage pressures ease, supporting the argument that inflation will fall back to the 2% target next year.
When asked if he would advocate a cut already in September, Kazaks said inflation is largely where the ECB expected it to be, so the case for gradual policy easing is intact.
“We are broadly along the baseline of our projections and that is consistent with a gradual decline in interest rates,” Kazaks, Latvia’s central bank governor, told Reuters on the sidelines of the US Federal Reserve’s Jackson Hole Economic Symposium.
“Our June projections assumed two more rate cuts this year and right now I don’t see any reason why we shouldn’t follow through,” he said, adding that he would make up his mind about September only after August inflation figures are published and he saw the ECB’s new projections.
While some recent inflation prints have surprised on the upside, Kazaks said that focusing on single numbers risked missing the forest for the trees.
He argued that broader trends in the economy are consistent with easing price pressures and that should eventually translate into lower inflation readings.
“Our projections already assumed relatively quick wage growth and we had numbers this week showing an easing of these wage pressures, so that also supports a gradual easing path,” Kazaks said. “Corporate profit margins are also declining.”
Growth in negotiated wages, a key number on the ECB’s radar, slowed to 3.6% in the second quarter from 4.7% three months earlier and economists already said this solidified the case for a September rate cut.
But Kazaks was also clear that the ECB should not tolerate any further slippage in the date when it met its inflation target, given copious delays already.
“I will become concerned if our projections show that getting back to the 2% target is pushed out into 2026,” he said. “We now expect to get there by the end of 2025 and it’s been pushed back far enough.”
Article Source – ECB has room for gradual rate cuts, Kazaks says – RTE
