ECB's Kazaks says time is not ripe for a rate cut

FRANKFURT (Reuters) -It is too early for the European Central Bank to discuss another interest rate cut as inflation in the euro zone might still turn out higher than expected, ECB policymaker Martins Kazaks said on Thursday.

The ECB halved its policy rate in the year to June as it watched price growth fall to its 2% target, but the rate has since been on hold despite projections for slightly lower inflation and moderate economic growth.

With the next ECB meeting on December 18, Kazaks said this was not the right time to cut borrowing costs as underlying inflation remained well above 2% and there were risks in both directions.

"Given the data we have received up to now, I don’t think the time is ripe for discussing a rate cut," the Latvian governor said in an interview.

ECB rate setters will receive inflation forecasts for the next three years at their next meeting and Kazaks emphasised the 2026 and 2027 numbers as more important than the ECB's initial number for 2028.

"Of course, we have to see the new projections first and I would put the stress on 2026 and 2027 because monetary policy plays out over one or two years, and a projection three years out has a wide margin of error, particularly with this level of uncertainty," he said.

The ECB's latest projections, published in September, put inflation at 1.7% in 2026 and 1.9% in 2027.

Kazaks acknowledged that the likely postponement of the European Union's ETS2 emissions trading system would "flatten" inflation but he and colleagues should also "continue to look at core inflation, which has been well above 2%".

He said downside risks to inflation such as ETS2, the dumping of Chinese goods on the European market and a possible appreciation of the euro were "much better known" but upside risks like trade fragmentation should not be discounted.

(Reporting by Francesco Canepa; Editing by Conor Humphries)