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ECB not in hurry to cut rates, should take measured steps after Jun: Kazaks

The ECB has all but promised a rate cut on June 6 so the discussion has shifted to how quickly its next move should come and what conditions must be met for more easing

ECB, European Central Bank

A view of the European Central Bank (ECB) headquarters in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker/File Photo

Reuters

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The European Central Bank is likely to cut interest rates in June but the bank is not in a hurry to ease policy, so subsequent moves could be spaced out to give time for assessment, ECB policymaker Martins Kazaks said on Thursday.
 
The ECB has all but promised a rate cut on June 6 so the discussion has shifted to how quickly its next move should come and what conditions must be met for more easing.
 
"I think we would benefit from a measured path going down," Kazaks, Latvia's central bank governor, told Reuters on the sidelines of a conference. "It's much easier to take decisions when we have the outlook meetings and new projections." Still, June was a safe bet since all the requirements for the move were in place for now and the economy was developing largely as predicted, Kazaks said.
 
"Given that inflation will be moving sideways for most of the year, you should not expect some kind of action at every meeting," Kazaks said.
 
The ECB will release new projections on June 6, then again in September and December, with meetings in July and October serving as interim sessions where policymakers assess progress against their forecasts.

The comments align Kazaks with Dutch central bank chief Klaas Knot, who has also made the case for quarterly rate cuts to be aligned with fresh forecasts.
 
Kazaks said rate cuts at interim meetings should come if economic developments deviated sharply from the ECB's own outlook, otherwise policymakers should hold off.
 
Markets also anticipate such an approach as roughly three cuts are priced in, with the anticipated steps aligned with the ECB's quarterly projections.
 
"I'm relatively fine with the current market pricing and disturbing that would just mean creating more volatility," Kazaks said. "But I don't think we should risk markets repricing."
 
Kazaks said that the ECB's 4% deposit rate was now "deep" in restrictive territory, meaning that even after the first few steps, high rates would continue to hold back economy growth, mitigating the risk that inflation becomes entrenched.
 
The ECB targets inflation at 2% and sees prices hovering just above its target for the remainder of this year before disinflation picks up pace again next year and falls to target in 2025.
 
"The economy is not extremely weak, so there is no rationale to rush rate cuts. Let's do it in a measured way and remain patient," Kazaks said.
 

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First Published: May 16 2024 | 10:49 PM IST

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