Risk of ECB Not Doing Enough Higher Than Risk of Doing Too Much, Kazāks Says

13 April 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The risk of the European Central Bank not doing enough to fight inflation is clearly higher than the risk of going too far, Governing Council Member Mārtiņš Kazāks said on Thursday.

In an interview with CNBC, Kazāks, who heads the Bank of Latvia, said that he saw no reason for the ECB to slow down its rate hikes yet.

‘The risk of not doing enough in terms of raising rates in my view is significantly higher than doing too much’, he said.

He told viewers that ‘at least in my books, I don't see any reason to slow down anytime soon in terms of interest rate increases, because inflation does remain very high. Yes, we've seen some improvement in terms of the headline, but core is still very persistent.’

He said that for the ECB’s upcoming meeting in May, he ‘would certainly not exclude 50bp, by all means interest rates still need to go up.’

The euro area economy was ‘not out of the woods yet’ regarding the risk of recession, which he described as ‘not trivial’.

‘We also see that the labour markets have been very strong, much stronger than expected, which leads to the situation that the rates will need to go up more to tame the inflation problem’, he said. ‘And that may have some implications for the pockets of vulnerability that we have seen in certain market segments.’