Transcript: Interview with ECB Governing Council member Kazāks on 15 January 2026

19 January 2026

By David Barwick – FRANKFURT (Econostream) – Following is the full transcript of the interview conducted by Econostream on 15 January with Mārtiņš Kazāks, Governor of Latvijas Banka and member of the Governing Council of the European Central Bank:

Q: Governor, after the European Parliament’s Committee on Economic and Monetary Affairs declared you one of its preferred candidates for ECB vice president, how do you see your chances?

A: I am fully committed to the competition for the vice presidency. I do not know how likely any outcome is, but I would stress that my candidacy is not just about getting a Latvian foot in the door for subsequent Executive Board openings. We’ve been part of the Eurozone for over 10 years and a member state of the European Union for more than 20. We’ve learned a lot and shown we can deliver. We are ready to take on more responsibility on a pan-European level. If I am chosen for this honor, I will do my best, because it’s crucial that Europe be strengthened. Nowhere is this more obvious than on the eastern edge of the region. So, I have a huge motivation to see Europe succeed. In any case, I look forward to a speedy decision, because we urgently need to make substantive progress rather than engaging in never-ending discussions and lobbying. So, I very much agree with the Eurogroup president that the ECB vice presidency is an issue to be resolved quickly and effectively.

Q: Your Estonian counterpart, Madis Müller, said that if chosen, he would represent a “cautious and perhaps conservative standpoint” in terms of monetary policy. What would you represent?

A: The pragmatism that it takes to deliver on our target of 2% inflation in a volatile world. This means—and my record reflects this—being able to adjust to a changing environment. When I saw the risk of post-pandemic inflation coming in much higher than forecast, I realized early that policy action was necessary and had to be forceful. So, at that time, one could say I was relatively hawkish. But with inflation at target now and over the medium term, I am back to being more centrist. I prefer to be as pragmatic as necessary to deliver 2% inflation, rather than cleaving to specific positions. I also stand for clear communication as a key element for monetary policy to be effective and efficient. This is not new; Commerzbank’s study last year ranked me as the Governing Council member from whom markets get the most reliable signals. Markets’ understanding of our reaction function has contributed greatly to our situation of relative stability in a tough environment, so this is important.

Q: You said recently that we're still in a good place. How do you define “good place?”

A: One aspect is that inflation is near the target; at the moment it’s exactly 2%, but it's been close to target already for half a year or so. Another aspect is our baseline scenario, according to which we will remain around the target with relatively minor deviations. Third, uncertainty is high and risks are two-sided, so alternative scenarios could materialize, but the baseline seems reasonably robust from today’s perspective, barring a major shock. This all adds up to being in a good place, and it means that we don’t need to make any abrupt policy adjustments. We don’t have any “unfinished business” in terms of interest rates, either; if the baseline macro scenario holds, rates are appropriate as they are. So, we can be patient and await developments, even if we cannot be complacent. With interest rates at 2%, we are well positioned to move in any direction if the situation warrants it, using our most effective instrument.

Q: What do you think is most likely to knock us out of this good place?

A: There are many potential shocks, and it is hard to rank them. Geopolitical shocks, for example, can push inflation in either direction depending on the channel and the policy response. Financial markets are another area: if something breaks there, the near-term impulse would most likely be recessionary. A related uncertainty is the AI cycle. If the current hype ends in a correction but is followed relatively quickly by meaningful productivity gains, then the macro risk from the correction is smaller. But those gains may arrive only later, which would leave a more difficult interim period. China is also a downside risk, not only through its exports to Europe, but through intensified competition from Chinese firms in third markets where European companies sell. Fiscal policy is another hard-to-assess factor. Germany’s stimulus is structurally necessary, but the key question is how much translates into higher productivity versus how much mainly boosts consumption and, in turn, price pressures. So there’s a wide set of forces that could take us in either direction. Ultimately, that reinforces the case for making Europe’s economy more efficient and more productive.

Q: You have said that there is no set rate path. Are you mainly trying to prevent markets from pricing any direction prematurely, or mainly just uncertain yourself about what the next move will be?

A: The two things are related and it’s hard to say that one outweighs the other. This is why our meeting-by-meeting, data-dependent modus operandi is very helpful. In the current environment, the main task is not to pre-commit to a rate path, but to explain our reaction function—how we will respond as the data and risks evolve. My sense is that markets understand the ECB’s reaction function well. Forward guidance about what will happen in three or six months is both extremely difficult and unnecessary in practice, because the world is unusually volatile and exposed to multiple shocks. Nobody can credibly predict which shocks will hit via which channels, so the right posture is agility: remain open-minded and react when necessary. Forward guidance tends to be most useful when policy is close to the effective lower bound and conventional rate moves are constrained. We are not in that position. So clear communication of the reaction function, combined with meeting-by-meeting decisions, is better than encouraging markets to price a specific direction prematurely.

Q: The more markets think the next move could be up, the more repeating “good place” sounds like the ECB is saying it doesn’t want to move. So, doesn’t the phrase risk undermining optionality rather than preserving it?

A: I would not read it that way. “Good place” is just a conditional assessment of where we stand today, given available information. Our modus operandi remains meeting-by-meeting: if, at a future meeting, we no longer judge ourselves in a good place, then we will act. So, I do not think saying we are in a good place undermines optionality. It does not reduce our willingness or ability to move when it becomes necessary; it just describes the current state. Think of it like carrying an umbrella: you may not need it right now, but if the weather changes, you use it. We are ready to move if circumstances warrant it, and I would caution against reading more into the phrase than that.

Q: Still, in December, President [Christine] Lagarde only mentioned “good place” once, and only when asked, whereas in previous press conferences, she used it many times at her own initiative. That leads me to wonder whether everyone still accepts the phrase.

A: I think you are reading too much into the phrasing. The shared assessment is still that we are in a good place and that the current level of rates is appropriate. The December decision was unanimous. I do not think anyone on the Governing Council is counting how many times a particular phrase is used at a press conference, and I would not infer anything about internal acceptance from that.

Q: What would you most wish to avoid: markets locking in cuts too early, or hikes too early?

A: I would worry if markets were significantly mispricing the macro outlook. If that happens, you have to ask whether the market is missing something, or whether we are. I do not want markets to be far off in either direction. Sometimes markets get carried away and then they have to adjust; sometimes we have to adjust as well, because nobody has perfect foresight. So, framing it as “cuts too early versus hikes too early” is a bit like asking which is worse—losing the right hand or the left. I do not want to lose either. The point is to keep pricing broadly aligned with the underlying outlook, and correct when it drifts.

Q: If markets understand your reaction function, does it mean that you're okay with current pricing?

A: Broadly speaking, given the uncertainty we face, expectations look reasonably aligned. If markets were significantly mispricing the macro outlook, that would worry me and I would ask why, what is the reason.

Q: When you talk about staying open-minded, are you describing the distribution of views around the table or protecting the ECB’s ability to respond to data without being boxed in by market pricing?

A: The latter. For me, being “open-minded” is about protecting the ECB’s ability to respond to the data and the balance of risks without being boxed in. A simple example is forward guidance: we used it in earlier years, often in a calendar-driven way, and we learned that it is an instrument like any other. When it is no longer fit for purpose, you stop using it. That’s what I mean by being open-minded. You look at the data flow and at risk scenarios, consider alternative paths, avoid a narrow focus, and if necessary you adjust policy. It also means the ability to move in either direction, in small or large steps, and with different instruments—always with the clear aim of delivering a symmetric 2% inflation rate in the medium term.

Q: Every meeting account last year except April mentions "full optionality", but no one ever mentioned it at a press conference until December, when Madame Lagarde elevated it to the unanimous outcome of the meeting. Why?

A: You may be reading too much into it again. We do not aim to be cryptic. The Governing Council is not counting how many times a phrase appears in the monetary policy statement or comparing formulations across documents as if there were a code. We try to stress what we consider important at the time, but there is no hidden approach—tie color does not signal the direction of the next policy move. Of course, sometimes phrasing changes or something may slip in or out, but I would not draw strong conclusions from that.

Q: We had interesting comments from colleagues of yours recently. [Eesti Pank] Governor Müller said that the issue of when rates might go up is not a question for the next months or quarters, but perhaps for a few years ahead. And [Banque de France] Governor Villeroy called the idea of a rate hike this year a “fanciful theory.” So, both of them are taking rate hikes off the table for at least 2026. Do you agree with them?

A: I would refer to what my fellow Governing Council member [Austrian National Bank Governor] Martin Kocher said in response: we agreed that we are not giving forward guidance, and the reason is that uncertainty is extremely high. With what we know today, current market pricing looks broadly reasonable, and if the economy evolves broadly along the baseline, monetary policy could develop in that direction. But there is no single rate path. The decision has to be tailored to the specific scenario that actually materializes and to whatever shocks hit the economy. That is why it is very hard to say confidently now what will be done later this year.

Q: Uncertainty goes up and down, but for the time being remains high. When do you think we might get more clarity?

A: Two points. First, in the current geopolitical environment, I am not sure we should expect clarity to return in the old sense. Uncertainty is structurally higher as long as we are in this geopolitical regime, because shocks are not just possible — they are more likely to materialize than they were 10 or 20 years ago. Second, we have learned to live with shocks better than before — our “skin gets thicker,” and we do not feel every bite as much. But that does not mean the risks have gone away. When shocks accumulate, the risk of nonlinear effects rises: at some point something can give, a kind of critical mass can be reached, and that can trigger further spillovers. That is why resilience matters. The past year illustrates the point. We have seen events that, in earlier thinking, might have been expected to hit growth much harder — and yet asset markets have been up and the surface has looked relatively calm. My worry is that this calm can be misleading: some costs show up with a lag. [US economist] Gita Gopinath has made this point with analogies like Brexit, where the longer-run costs to living standards and the economy became clearer over time. So, I would not be too reassured that worst-case scenarios have not played out immediately. We should assume a world of more frequent shocks and focus on strengthening Europe’s fundamentals now — deepening the single market, simplifying in a way that works across the EU rather than in 27 fragments, modernizing the financial system, and building strategic resilience. We know many of the right steps; the key is to implement them before those seismic changes fully show up in slower growth and weaker living standards.

Q: From a monetary policy perspective, what would the impact be of a US seizure of Greenland?

A: It would depend on the circumstances — how it happens, when it happens, and what else is going on. Those conditions would matter a lot for the economic and financial transmission. But it would most likely be a nonlinear shock — a critical geopolitical event that could shift behavior, confidence, and risk premia abruptly. My broader point would be that Europe should not spend its time trying to guess the next shock and then merely follow events. If we are always reacting, we will always be behind. We need to lead and build resilience so that shocks do not force us into improvised responses. In that context, I would not say the main “action” is in monetary policy. The monetary policy framework and operational capacity are fit for purpose — we can deliver, and we have delivered. Where Europe is less fit for purpose is structural: in particular, our financial markets are underdeveloped and too small, and that undermines Europe’s future strength. The good news is that these are structural problems we understand, and we can fix them. We know what the issues are and what it would take to address them. My message is simply: let’s do it.

Q: What about a toppling of the current Iranian regime?

A: Again, it would depend heavily on the context — how it unfolds and what it triggers. The immediate channel you would watch is commodities, especially energy, but there are also broader confidence and geopolitical spillovers: does it stabilize expectations, or does it embolden other actors to challenge the existing order? There is a saying in Latvia: the deeper you go into the forest, the more wood there is. The point is that once you start thinking through these scenarios, they can accumulate and interact, and the risk of nonlinear dynamics rises. So, I would not want to speculate on the outcome of any single political process in isolation. The only safe statement is that the current geopolitical environment is prone to shocks. The best response is to make ourselves as resilient as possible. In economic policy terms, that means strengthening Europe’s growth and productivity fundamentals. And on the financial side, it means completing the single market for financial services — advancing the savings and investment union, the banking union, and related integration — so that capital is allocated more efficiently. Europe has the money; we need to become better at putting it to work for European citizens.

Q: What about a peace that Ukraine can accept?

A: Peace in Ukraine would of course be very welcome — above all for Ukrainians. War is a terrible thing, and the sooner it ends, the better. But the crucial issue is what kind of peace it is and how it ends. Is it a durable settlement that lets Ukrainians — and Europe — return to normal life and rebuild, or is it merely a ceasefire that leaves everyone having to prepare for the conflict to reignite? That’s why it’s hard to be definitive: the outcome depends on too many moving parts. A good, lasting peace would be a fantastic development and it should come as soon as possible, because the human suffering is immense. But it has to be on terms that make sure it does not happen again.

Q: We know that US President Trump would love to get rid of Federal Reserve Chair Powell, but we also know that even Trump can’t completely disregard financial markets. Or are you worried he will?

A: Checks and balances are essential. But looking at it from a monetary policy perspective, central banks deliver their best outcomes when they are independent and accountable. Independence in operational decisions creates the right incentives: you take decisions on the basis of the mandate, you accept that mistakes will happen, and you learn from them. Nobody has perfect foresight. What matters is a disciplined learning process and avoiding major policy blunders. If central bank independence is undermined, the risk is an inflationary bias — history and economic analysis show that. Inflation tends to hurt the less well-off disproportionately. And if it becomes severe enough that inflation expectations de-anchor, bringing inflation back to target later requires much tighter policy, higher sacrifice ratios, and more damage to employment — again hitting the most vulnerable hardest. So, an excessive focus on short-term political goals can undermine good decision-making. That is why defending central bank independence is so important. At the same time, independence does not mean a lack of accountability. The ECB and the Bank of Latvia are accountable to parliaments. Independence is not for the sake of central bankers; it is for the sake of citizens, because it improves the quality of policy and the results over time.

Q: To what extent could imported inflation be offset by a potentially stronger euro if confidence in the Fed’s independence were to weaken?

A: It’s hard to quantify, because you can “play out” different channels. Interest rate differentials matter for exchange rates, but they are only one driver. Credibility and institutional strength can matter too, as can broader risk sentiment. In an environment where institutions are being undermined and losing credibility, strong and credible institutions become an advantage. If there is a push elsewhere to weaken independence, the European answer should be to keep our institutions strong. That can support Europe’s standing globally and strengthen the case for the international role of the euro. A stronger international role for the euro can be beneficial in several ways: it can support “safe haven” behavior, make the system more stable and robust in crises, and help Europe finance its economy at lower cost. Europe has not always used the euro sufficiently as a strategic asset, and this is an opportunity to benefit from strong institutions. But institutions on their own are not enough. You also need a strong, dynamic economy. If the economy is not performing, then even very strong institutions cannot carry the whole story.