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Finance

ECB 'not quite there' with rate cuts but cautious flexibility needed, Kazimir says

Published by Global Banking and Finance Review

Posted on February 3, 2025

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FRANKFURT (Reuters) - European Central Bank interest rates have room to fall further given weak growth and a slowdown in inflation, but uncertainty is so high that any more precise guidance on rates would be unrealistic, Slovak policymaker Peter Kazimir said on Monday.

The ECB lowered borrowing costs for the fourth straight meeting last Thursday and kept the door open to more easing, arguing that inflation is well on track to its 2% goal and the last lingering price concerns should be gone soon.

Markets have fully priced in another cut on March 6 and policymakers speaking to Reuters on condition of anonymity said the real discussion about a potential pause could start only in April, given that the next cut remains uncontroversial.

While Kazimir did not endorse a March move, his comments on Monday appeared to focus on steps beyond that meeting.

"Updated forecasts combined with incoming data about service inflation and wage development will help us navigate what will happen in April and beyond," Kazimir said in a blog post. "Hence, the need to stay fully flexible, cautious and data focused."

He added that last week's cut moved the ECB closer to its destination but it was "not quite there" yet.

Inflation trends, the bank's primary focus, were encouraging, although more confirmation was needed that price growth remained on a downward path, despite surrounding risks, Kazimir added.

Inflation, at 2.4% in December, is expected to hover near this level for the coming months but a potential trade war with the U.S. clouds the outlook since retaliatory measures are likely to impact prices as well.

"Expecting a clear, long-term roadmap right now would be unrealistic," Kazimir, who sits on the ECB's rate setting Governing Council said.

Kazimir added that weak economic growth was a concern but that was not a surprise since the bloc was struggling with deeply rooted structural issues that weigh on output and will not be solved by lower borrowing costs.

(Reporting by Balazs Koranyi; Editing by Toby Chopra)