ECB official Kazaks warns: "It's too early to talk about rate cuts now," inflation risks still need to be watched

Author: Zhang Yaqi

Source: Wall Street Insights

European Central Bank (ECB) Governing Council member Martins Kazaks cooled market expectations of an imminent rate cut, clearly stating that it is too early to discuss further monetary policy easing given persistently high underlying inflation and existing risks.

In a Reuters interview on Thursday, Kazaks said, "Given the data we have received so far, I don't think the time is ripe to talk about rate cuts." The comments came ahead of the ECB's next policy meeting on December 18, adding uncertainty to the central bank's future interest rate path.

His remarks sent a clear signal to investors: although the ECB halved its policy rate over the year leading up to June, policymakers remain vigilant on inflation. Since June, despite forecasts showing a slight decline in inflation and moderate economic growth, the ECB has kept interest rates unchanged. Kazaks' comments indicate that any future rate cuts are far from certain.

He emphasized that core inflation being "far above 2%" is a key reason for his cautious stance. He believes inflation outlook carries two-way risks, so now is not the time to let down their guard.

Focus on 2026-2027 Inflation Forecasts

For the upcoming December meeting, new inflation forecasts will be crucial. At that time, ECB policymakers will receive inflation projections covering the next three years.

Kazaks particularly highlighted the forecast figures for 2026 and 2027. He noted, "Monetary policy transmission takes one to two years," making data for the next two years more meaningful than longer-term projections, which carry greater uncertainty. He added, "A forecast three years out has a very wide error margin, especially under current levels of uncertainty."

According to the ECB's latest projections released in September, inflation is expected to be 1.7% in 2026 and 1.9% in 2027—both close to or below the 2% target. The updated figures to be released at the next meeting will serve as a key benchmark for assessing the central bank's next steps.

Inflation Upside Risks Cannot Be Ignored

When assessing the inflation outlook, Kazaks acknowledged some factors that could lower inflation. He mentioned that a possible delay in the EU's ETS2 emissions trading system would "flatten" the inflation curve. Additionally, dumping of foreign goods in European markets and a potential appreciation of the euro are seen as downside risks to inflation.

However, he also pointed out that these downside risks are "better known." He warned that policymakers should not overlook inflation upside risks, such as price pressures arising from trade fragmentation. Kazaks reiterated that his colleagues at the central bank should "continue to focus on core inflation, which has remained well above 2%," indicating that controlling underlying price pressures remains a core concern for the ECB.