(Bloomberg) -- A reduction in interest rates next week by the European Central Bank is all but certain and two to three more will probably follow, according to Governing Council member Peter Kazimir.
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Recent data suggest quarter-point, back-to-back rate cuts should continue, Kazimir said late Monday in an interview. Heightened uncertainty, however, means the ECB must remain nimble in case things change.
“Three or four cuts in a row are feasible, but at the same time, I must say that we cannot swear to it,” the Slovak official said. As for next week, “for me personally, the deal is done.”
Most of Kazimir’s colleagues have sent similar signals before the ECB’s first policy meeting of 2025, with economists and traders fully aligned with such a move. But a debate about how quickly and how much further borrowing costs must fall is nonetheless heating up.
While some are concerned that a weak euro is adding to lingering inflation risks, others worry that an overly tight policy stance may take the disinflation process too far.
“What we need above all is balance between acting too cautiously and too aggressively,” Kazimir said. The ECB is on the “right track” in returning inflation to its 2% target, even though the job isn’t yet done, he said.
While wage growth is expected to ease further, damping price pressures in services, “we need rock-solid evidence that this channel works, and that’ll take a certain time,” he added.
Geopolitics poses additional risks, according to Kazimir, who highlighted price pressures that are likely to accompany US President Donald Trump’s economic policies, as well as disinflationary forces originating in China.
The ECB expects euro-zone inflation to reach 2% in the coming months and fluctuate around that level through at least 2027. A slight pickup in December, officials including Kazimir argue, doesn’t change that outlook — and didn’t come as a surprise.
“The incoming data justify a certain continuation of our path — I see no reason to pause — and I also see no reason to talk about a cut of a different size,” Kazimir said. “The current size of our cuts allows us to maintain momentum while also preserving a certain flexibility, which is needed. Especially now, when uncertainty shows no sign of abating.”