European Central Bank (ECB) policymaker Martins Kazaks stated on Thursday that it is currently too early to consider another interest rate cut. Kazaks suggested that inflation within the Eurozone could potentially exceed expectations. This comes after the ECB halved its policy rate in the year leading up to June, coinciding with a drop in price growth to its 2% target.
Despite projections indicating slightly lower inflation and moderate economic growth, the rate has remained steady. As the next ECB meeting approaches on December 18, Kazaks believes now is not the appropriate time to cut borrowing costs, particularly since underlying inflation remains above 2% and risks exist in both directions. Kazaks, who is the Latvian governor, emphasised the need to assess incoming data before any rate cut discussion can occur.
At their upcoming meeting, ECB rate setters will receive inflation forecasts for the next three years. Kazaks highlighted the importance of the 2026 and 2027 numbers, considering that monetary policy effects typically unfold over one to two years. He also acknowledged that the potential postponement of the European Union’s ETS2 emissions trading system could flatten inflation.
While downside risks to inflation, such as ETS2, potential Chinese goods dumping on the European market, and a possible Euro appreciation are known, Kazaks warned against dismissing upside risks like trade fragmentation. The ECB’s latest projections from September estimated inflation at 1.7% in 2026 and 1.9% in 2027.
