(Bloomberg) -- European Central Bank Governing Council member Martins Kazaks said interest rates can be lowered next year to levels that neither stimulate nor restrict the economy — should inflation meet the 2% target.
The remarks are among the first from an ECB policymaker on where borrowing costs may eventually settle, with most members of the Governing Council discussing the prospects of easing for the rest of the year at most.
Kazaks, who heads Latvia’s central bank, said rates must be lowered further due to the weakening economy in the euro area — reiterating his support for a move at next week’s meeting.
“If inflation in the next year really returns to a sustainable 2%, interest rates have to be on a neutral level,” he told a webcast Wednesday organized by Delfi. “We’ll find it step by step as we lower rates.”
While the neutral rate can only be estimated, it’s thought to be somewhere around 1.5%-3%. Markets reckon there’ll be six more reductions in the ECB’s deposit rate — bringing it to 2% next year.
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