ECB’s Kazāks: “Still in a Good Place – Inflation Close to 2%, Interest Rates at About the Neutral Level”

10 December 2025

By David Barwick – FRANKFURT (Econostream) – The European Central Bank remains in a good place, given current inflation and interest rates, ECB Governing Council member Mārtiņš Kazāks said Wednesday.

According to his prepared presentation for an online event made available by Latvijas Banka, which he heads, Kazāks said that monetary policy was “still in a good place,” with “inflation close to 2%” – despite “some pick-up in momentum recently” – and “interest rates at about the neutral level.”

He drew attention to “headwinds” related to fiscal policy in the region, suggesting that “higher budget deficits, government debts may complicate monetary policy in the coming years.”

The Governing Council would stick to its meeting-by-meeting, data-dependent approach to setting policy, he said, with “no unique and predetermined rate path” but “full flexibility.”

According to Kazāks, the “medium-term macro outlook remains clouded by geopolitical, institutional and policy uncertainty,” while near-term prospects are now “somewhat better than expected, mainly due to [the] resilient services sector and [the] robust labor market.” Growth was holding up “better than expected amid trade headwinds,” he said.

Core inflation required “continued monitoring,” he said, “in particular sticky services prices.” However, he held out the prospect of “softening wage growth” ahead, observing that the forward tracker was “indicating further moderation.”

The “softer wage growth” would “gradually feed through” to services inflation, he predicted.

Meanwhile, inflation expectations were “broadly stable and well anchored,” he said, according to the presentation, and the “temporary undershoot of headline inflation [is] mainly due to energy and food prices, [as well as the] later introduction of ETS2.”

In other comments, Kazāks said that policy uncertainty was likely to be an enduring feature and that “markets [are] vulnerable to sharp corrections if sentiment turns.” He noted that the “euro area trade deficit with China keeps widening.”