European Central Bank Governing Council Member Kazaks: The necessity for further interest rate cuts is not significant, and interest rates will enter a "stable era."

According to the Zhitong Finance APP, Martins Kazaks, a member of the European Central Bank's Governing Council, stated that the ECB has little reason to further lower interest rates unless the economy suffers a significant blow. The Latvian central bank governor noted that the current inflation rate is 2%, and the overall performance of the Eurozone economy is largely in line with the ECB's latest forecasts, thus the reasons for a rate cut in September, as anticipated by most economists before this week's meeting, are not clear. In an interview in Frankfurt, Kazaks said, "It makes sense to keep interest rates at current levels; the era of raising or lowering rates without careful consideration is over. At this point, adopting a prudent policy is appropriate." The day before these remarks, ECB officials maintained borrowing costs for the first time after a year of easing policies. They did not provide clear guidance on future actions as they await definitive results from U.S. trade negotiations. According to informed sources, the baseline scenario for the next Governing Council meeting seems to be to keep rates unchanged, and those advocating for further rate cuts will face a tough battle. Traders have lowered their expectations for rate cuts in September and beyond, interpreting President Christine Lagarde's comments as indicating that the threshold for further action may have been raised. Lagarde stated that the ECB is currently in a favorable position to achieve the 2% inflation target. Kazaks remarked, "There is no need to overreact—there is no urgent reason to adjust rates. Considering the large and sustained rate cuts we have made over the past year, there is still a significant amount of monetary easing yet to take effect in the economy." Kazaks is the first rate setter to express an opinion aside from Lagarde, and his views align with those expressed by Executive Board member Isabel Schnabel before Thursday's decision. Schnabel pointed out that the European economy has remained resilient so far, which means the threshold for further rate cuts is high. On the other hand, some policymakers, including François Villeroy de Galhau, the Governor of the Bank of France, have indicated an openness to further easing due to concerns about potentially weaker economic growth and inflation remaining below the 2% target. The current deposit rate is 2%, a level considered neither to suppress nor stimulate economic activity. Kazaks stated that in the coming weeks, he will focus on trade negotiations, service sector inflation, manufacturing recovery, and exchange rate issues. He said, "The euro exchange rate is quite volatile and changes rapidly, but the current level is still near the historical average range—let's not forget that the euro depreciated at the end of last year. However, we will closely monitor this situation." Despite the euro's recent stability, its 13% rise against the dollar this year has raised concerns for some, as it could increase the prices of export goods and lower import costs. Vice President Luis de Guindos stated in an interview this month that if the euro to dollar exchange rate rises above 1.20, the situation will become "much more complicated." At that time, Kazaks indicated that if the euro exchange rate rises significantly further, it could "shift the balance," prompting the central bank to cut rates again. As the ECB meeting approaches this week, reports suggest that the EU and the U.S. are about to reach a trade agreement. After the meeting, the Latvian central bank governor urged policymakers to wait patiently before judging the terms of the agreement Kazakhs said, "Given that politicians' views can change rapidly, it is best to wait and take action based on reality rather than speculation." He also added that there are "still some untapped growth potentials" in the economy. He emphasized, "If trade disputes can be resolved quickly, excessive uncertainty can be eliminated, and the boost in confidence may support investment and consumption, thereby mitigating the apparent negative impacts of tariffs."