(Bloomberg) -- The European Central Bank’s data-dependent and gradual approach to setting monetary policy remains appropriate, Governing Council member Martins Kazaks says in presentation for online event.
“If downside risks were to materialize, data dependency allows to act in faster to avoid settling into ‘bad’ equilibria,” the Latvian central-bank chief says. “The easing cycle will continue, but the pace and depth of it will continue to be determined by the incoming data” and the Governing Council’s judgment.
Kazaks also says:
- Why ECB could adopt a steeper path of interest rate cuts:
- “If global trade disruptions lead to a significant weakening in EA growth outlook that is accompanied by deflationary pressures on prices”
- “If the persisting uncertainty leads to an excessive accumulation of savings and/or significant drop in investments, thus intensifying risks of recession”
- “If the current labor markets tightness (sharply) goes into reverse”
- “If significant undershoot risks to our medium term inflation objective emerge”
- Why ECB could be on a more gradual easing path:
- “If persistent labor shortages lead to strong wage growth and rising unit labor costs”
- “If profit margins stay elevated and do not absorb the rising ULC to the extent that is currently envisaged”
- “If fiscal policy is overly expansionary (beyond what is justified by the current economic cycle), thus contributing to inflationary pressures”
- “If significant additional investment needs (green transition, digitalization etc.) lead to estimates of a persistently higher r* for the euro area”
- Read More: ECB to Discuss Bigger Cut But Uncertainty High, Kazaks Says
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