ECB’s Kazāks: Selected Quotes From Panel Participation

14 June 2024

By David Barwick – DUBROVNIK, Croatia (Econostream) – Following are selected quotes of European Central Bank Governing Council member and head of Latvijas Banka Mārtiņš Kazāks, speaking on Friday during a panel discussion of the Dubrovnik Economic Conference:

• ‘If central banks can maintain credibility, they can live through the temporary episodes of losses.’
• During the negative interest rate period, we provided subsidies for banks that enabled them to keep positive rates on deposits, while lowering rates on their loans. But as a result, in a number of countries rates on loans did not decline at all, or only marginally. … Now, during the period of rising rates, we see that in a number of countries, rates on loans go up in line with money markets rates, but deposit rates are more sluggish. As a result, part of the traction of monetary policy is lost, because higher rates should encourage people to save more, but if deposit rates do not change much, we lose this channel of monetary policy transmission. And generally it is discomforting, of course, that the central banks have to subsidise banks both when rates go up and also when rates go down. This is clearly not sustainable.’
• ‘QE has shown that it can be very effective in times of stress and when a rapid central bank intervention is required. So it will be in our toolkit also in the future. But it comes with certain side effects, and the longer we use QE as our primary policy tool, the larger the potential side effects.’
• ‘So next time we use QE as our policy tool, our interventions must be decisive, but we also have to maintain flexibility and cannot tie our hands too much with either too specific commitments in terms of time horizon, or too long maturities of the assets we are purchasing.’
• ‘In this regard, our second most widely used tool – TLTROs – was much better designed in that it was most demand-based, and with a significant yet relatively limited time horizon. As a result, we provided necessary stimulus when there was the most acute need, but we were able to quickly shrink our balance sheet when the stimulus was no longer needed.’