Exclusive: ECB’s Kazāks: “May Well Be the Case” That Next Rate Move Could as Easily Be a Hike as a Cut

22 October 2025

By David Barwick – FRANKFURT (Econostream) – It could be that the European Central Bank’s easing cycle has reached the terminal rate and that the next adjustment of interest rates will be upwards, according to ECB Governing Council member Mārtiņš Kazāks on Wednesday.

In an interview with Econostream (transcript here), Kazāks, who heads Latvijas Banka, gave no indication that he expected any move to happen in the short term, and indeed characterized the current 2% level as “appropriate,” with “no need to change interest rates” at present.

Asked however how he regarded some fellow Council members’ view that 2% would prove to be the terminal rate, he replied, “Given the very small adjustment expected by the market, given that we are near our target and the current inflation outlook doesn’t show a major sustained deviation, it may well be the case.”

The ECB would in any event move in the appropriate direction as necessary, whether up or down, he said.

“There is currently no need to be biased to the upside or the downside,” he said. “We are in a good place. We have delivered on our target.”

It was not evident that further easing would be of much value, he suggested, observing that in any case, most of the cycle’s cuts were now in the past.

“If any more would be coming, it would be small, raising the question: Why do it, what does it do for the economy?,” he said. “Small cuts are unlikely to have a sizeable impact on the economy, and past cuts are still feeding through. So, it would be more a signaling story.”

Financial markets needed watching, he indicated. Asset valuations in part “seem quite stretched,” he noted. “They cannot continue to grow at such a pace indefinitely.”

A market correction could lead to a visible economic impact, he warned. “It won’t necessarily come to this, but caution is warranted,” he added.

In the context of recent comments of his about the possible need for a rate cut if inflation were seen significantly undershooting the target for a long time, Kazāks denied wanting to be understood dovishly.

“A policy reaction under such circumstances is clearly spelled out in our strategy,” he said. “Currently, based on available data and the outlook, 2% is the appropriate policy rate. … Risks to growth are still somewhat on the downside, and this, among other things, may influence the outlook.”

The ECB was now in a “monitoring mode,” but “increased confidence that we’ve achieved our target means we don’t need to be jumpy,” he said. “Minor adjustments are not as necessary when you have credibility in delivering on the target.”