Latvian Central Bank Governor Kazaks Cautions Against Overly Aggressive ECB Rate Cuts

According to Martins Kazaks, a member of the ECB Governing Council and Governor of the Bank of Latvia, the European Central Bank should lower interest rates further, but it may not need to bring them down to levels that would stimulate economic expansion. Kazaks argued that inflation is not on a path to fall below 2%, and that the ECB could gradually reduce borrowing costs to what is known as neutral—which is the point where they stop constraining growth. However, he also noted that all options remain on the table due to risks associated with geopolitical conflicts in Europe and a potentially more hostile trade environment under Trump's presidency. Kazaks stated, "The direction of rates is down; we are clear on this." Nevertheless, he added that he would be "very, very cautious" about going below the neutral rate, as the economy does not appear to be that weak and the ECB's current outlook does not indicate that inflation will remain below target for an extended period in the coming years.