ECB Governing Council member Martins Kazaks pushed back on talks that the central bank would cut interest rates by the end of this year. He said he failed to see a “rationale” for that.
“It would take a deep recession with a sizeable jump in unemployment for inflation to sink and thus push for rate cuts,” the Latvian central bank governor said. “But that is not likely, given the current macro outlook.”
“It is possible for core inflation to continue trending up even as headline inflation is coming down, for instance, due to swings in energy prices,” he said. “In my view, core inflation currently is a key gauge for inflation persistence and policy decisions.”
He expects interest rate to rise “well into restrictive territory” but declined to estimate the terminal rate. “Uncertainty is too high, and we shall find it step-by-step,” he said.