(Bloomberg) -- European Central Bank Governing Council member Martins Kazaks said he’s ready to discuss another reduction in interest rates at next month’s meeting, voicing confidence in inflation returning to 2% as well as worries over the economy.
“Given the data we have at the moment, I would be very much open for a discussion of yet another rate cut in September,” the hawkish Latvian central bank chief said Thursday at the Federal Reserve’s annual conference in Jackson Hole.
“But we will see — we still need to see the new forecast, we still need to see August data for inflation,” he told Bloomberg TV. “Overall, I would say even if inflation over the next few months keeps moving sideways, it is consistent with further rate cuts.”
The remarks come three weeks before the ECB next sets borrowing costs for the 20-member euro area. Following June’s landmark cut, investors anticipate a second reduction in September — particularly as the region’s economy shows signs of softness, led by German industry.
“Monetary policy has done a good job to push inflation down, to create a basis for growth, less uncertainty,” Kazaks said. “But there is a lack of structural improvements which has meant that growth overall has been relatively timid.”
At their last meeting, in July, officials considered September to be an appropriate point to review their policy stance, though pledged to keep an open mind in light of lingering risks to the inflation outlook, according to an account of their decision.
Since then, productivity data fell short of the ECB’s expectations, but figures released earlier Thursday showed gains in negotiated wages moderated in the second quarter — boosting hopes that inflation will return to 2% in 2025.
That’s a timeline Kazaks still deems reasonable. In the near term, he said that even after a “couple” more decreases in the deposit rate, which currently stands at 3.75%, monetary policy will remain restrictive.
Kazaks aligned with other Governing Council members in signaling that reductions in borrowing costs would be preferable each quarter, when the ECB produces fresh projections.
“From the current perspective, a gradual, step-by-step approach to rate cuts will be best,” he said.
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