Will the European Central Bank cut interest rates next week "be set in stone"? Governing Council member Kazimir: There may be two to three more rate cuts in the future

According to the Zhitong Finance APP, Peter Kazimir, a member of the European Central Bank's Governing Council and the Governor of the Slovak Central Bank, recently stated that a rate cut by the European Central Bank next week is almost a foregone conclusion, and there may be two to three more cuts in the future. In an interview on Monday evening, he indicated that recent data suggests the European Central Bank should continue with a series of rate cuts of 25 basis points each. However, given the increasing uncertainty, the European Central Bank must remain flexible to adjust its policies in a timely manner based on changing circumstances. The Slovak Central Bank Governor noted that a series of three to four rate cuts is feasible, but cannot be guaranteed completely. He emphasized that regarding the rate cut decision next week, "for me personally, an agreement has been reached." In fact, most of Kazimir's colleagues have also sent similar signals ahead of the European Central Bank's first policy meeting in 2025, and economists and traders generally support this move. However, the debate continues to heat up regarding how quickly and by how much borrowing costs should be further reduced. Figure 1 On one hand, some are concerned that a weak euro may increase inflation risks; on the other hand, others worry that an overly tight policy stance could lead to excessive deflation. Kazimir stated, "What we need most is to strike a balance between being overly cautious and overly aggressive." He pointed out that while the European Central Bank's work is not yet complete, it is on the "right track" to restore inflation to the 2% target. Although wage growth is expected to slow further, thereby suppressing price pressures in the service sector, Kazimir emphasized, "We need solid evidence that this channel is effective, and that will take some time." Additionally, Kazimir believes that geopolitical factors pose additional risks. He specifically mentioned the price pressures that may arise from U.S. President Donald Trump's economic policies. The European Central Bank expects that the inflation rate in the eurozone will reach 2% in the coming months and will fluctuate around this level at least until around 2027. Officials, including Kazimir, believe that a slight rebound in the inflation rate in December does not change this outlook and is not surprising. Figure 2 Kazimir further stated, "The latest data shows that we will continue to maintain the current production cut policy. I see no reason to pause the cuts, nor to discuss different magnitudes of cuts." He pointed out that the current magnitude of the cuts is sufficient to maintain economic growth momentum while retaining some flexibility, which is crucial, especially in the absence of signs of reduced uncertainty At the same time, Trump threatened to close the U.S. border and impose trade tariffs on the world, policies that could drive up domestic inflation in the U.S., thereby forcing the Federal Reserve to maintain high interest rates. As a result, the dollar has recently strengthened on expectations, which has also sparked speculation about the impact of European Central Bank policies. Kazimir pointed out that the current intention of the European Central Bank's Governing Council is to eliminate all constraints on the economy while not stimulating demand. He believes that the neutral level of interest rates should be between 2% and 3%, possibly closer to 2% rather than 3%. He emphasized, "We rely on data, not the Federal Reserve." European Central Bank officials often repeat this view. He also stated that the European Central Bank is monitoring exchange rates, as they can affect inflation through import prices, but should avoid drawing conclusions based on short-term developments. Kazimir also mentioned that the negative economic consequences of Trump's policies may be more concerning than their potential inflationary impact, especially considering Europe's already "very slow potential growth." He noted, "Europe's structural problems are more severe and painful, and with Trump's economic policies, Europe's competitiveness issues will become more pronounced."