ECB’s Kazāks: See Risk of Inflation Resurging if ECB Cut Rates Too Fast

23 September 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Mārtiņš Kazāks said on Monday that the ECB would face a risk of inflation resurging if it were to cut interest rates too quickly.

In an interview with Latvian newspaper Leta, Kazāks, who heads Latvijas Banka, said that despite inflation being at low levels, ‘we cannot yet say that the inflation story is over’, especially given high services inflation.

‘If the Governing Council of the ECB were to cut rates too fast, there is a risk that inflation will revive’, he stated.

Weakness in the economy, on the other hand, argued for the ECB to cut rates further, he suggested.

‘The economy is weak, and if rates remain too high for too long, this can lead to an unnecessarily sharp slowdown in the economy and a rise in unemployment’, he said.

The risk posed by services inflation was now ‘still more significant’ than economic weakness, he observed, but the direction of rates was ‘undoubtedly’ downwards.

‘In order to be able to reduce rates safely, we should see a clear trend of inflation on the services side slowing down. Unfortunately, we have not seen such a trend in recent months, which makes it necessary to remain vigilant with regard to the reduction in interest rates, and the reduction is not as sharp as one would perhaps like’, he said.