Latvian central bank head Kazaks warns against excessive interest rate cuts by the ECB

According to Martins Kazaks, a member of the ECB Governing Council and the President of the Latvian Central Bank, the European Central Bank should further lower interest rates, but it likely won’t need to bring them down to levels that would encourage economic expansion. Kazaks argues that inflation is not trending towards falling below 2%, and that the ECB could gradually reduce borrowing costs to a neutral level, known for no longer restricting growth. However, he noted that due to risks ranging from geopolitical conflicts in Europe to a potentially more hostile trade environment during Trump's presidency, all options remain on the table. "The direction of rates is down; we are clear on that," Kazaks stated. He also added that he would be "very, very cautious" about going below the neutral rate, as the economy is not that weak and the ECB's current outlook does not indicate that inflation will remain below the target for an extended period in the coming years.