European Central Bank board member Kazaks: If inflation data is good, will agree with the market's expectations of a rate cut by the European Central Bank

According to the Wise Finance APP, Martins Kazaks, a member of the European Central Bank's Governing Council and the Governor of the Bank of Latvia, stated in an interview on Friday that if inflation continues to slow as expected, the European Central Bank can continue to cut interest rates to the extent expected by the market.

Last week, the European Central Bank lowered its policy interest rates from the high point of the euro era, but did not commit to taking further action. Instead, it issued warnings about wages and maintaining strong service sector inflation.

Kazaks said that inflation will remain stagnant this year, but he still believes that inflation will move towards the ECB's target of 2% next year, as long as inflation data continues to meet the central bank's expectations, there is reason to further cut interest rates.

During an interview at a conference in Dubrovnik, Croatia, he said, "Uncertainty remains high, but we are on the path of inflation decline."

He said, "We can lift some restrictions, but we should still maintain a certain degree of restrictiveness and act between meetings based on the data observed." He expressed satisfaction with the current market expectations, namely cutting interest rates one to two times before the end of this year, each time by 25 basis points, and then cutting rates twice next year.

Kazaks said, "The current market pricing seems reasonable, but (the interest rate cuts by the central bank) will not be on 'autopilot'." However, he noted that there are still many variables, such as wage growth and whether companies can absorb or eventually pass on the costs to customers.

He stated, "This is not a done deal yet, that's why I remain relatively cautious."

Since the release of some wage and inflation data last month that were stronger than expected, the market has become more skeptical of the European Central Bank's ability to cut interest rates.

Kazaks warned against overreacting to "one or two" abnormal data points, stating that the data largely aligns with the European Central Bank's expectations.

He said, "If you want the data to deviate from the baseline scenario... the changes must be continuous and significant," and assessed that for the European Central Bank to change direction and consider raising interest rates instead of cutting them, there must be significant external shocks, such as geopolitical events.

In conclusion, he said, "But if we stay within the baseline scenario, then I think the direction is relatively clear, the only question is the pace and extent of (interest rate cuts). We will understand this as we look at the data."