ECB’s Kazāks: Rate Cuts in 2023 ‘Not Likely’, Given Macroeconomic Outlook

13 January 2023

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is unlikely to reverse the current policy tightening cycle before the end of the year, according to ECB Governing Council member Mārtiņš Kazāks on Friday.

In an interview with Reuters, Kazāks, who is Governor of Latvijas Banka, said, ‘It would take a deep recession with a sizeable jump in unemployment for inflation to sink and thus push for rate cuts. But that is not likely, given the current macro outlook.’

According to the news agency, he called for rate hikes ‘well into restrictive territory’ but declined to specify where the tightening should end. ‘Uncertainty is too high, and we shall find it [the terminal rate] step-by-step’, he was quoted as saying.

The critical indicator was core inflation, he appeared to suggest.

‘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.’