By Francesco Canepa
FRANKFURT (Reuters) -The European Central Bank should stop cutting interest rates at every meeting and instead keep its powder dry given an uncertain economic outlook, ECB policymaker Martins Kazaks told Reuters.
The ECB cut rates for the seventh time in a row on Thursday to prop up a euro zone economy that was struggling even before erratic U.S. economic and trade policies dealt it further blows.
Kazaks called time on that year-long easing cycle, saying the ECB should keep “policy space” to cut rates again at a later date if needed.
“I don’t think the market should expect the trajectory of cutting rates at every meeting to continue,” he said in a phone interview. “There is no need and there is value in maintaining policy space.”
Most ECB policymakers back keeping interest rates, now at 2%, on hold at their next gathering in July, or possibly longer, depending in part on the prospects for trade with the United States, sources told Reuters.
Kazaks also supported a possible pause but warned against making any firm commitment – of “forward guidance” in central bank parlance – given an ever-changing political landscape.
“We don’t get much data between now and the July meeting so it may well be the case that we pause,” Kazaks said. “But uncertainty remains very high, the political situation may change every day. So forward guidance isn’t your friend in these circumstances.”
Even if the ECB were to cut rates further, this would amount to small, “fine-tuning” moves for as long as inflation was projected to stay at 2% over the medium term, Kazaks said.
“In terms of the rate cutting, we’ve done a lot,” he said. “If there are further cuts, they will be fine-tuning, unless we shift out of the baseline scenario.”
The ECB published new projections on Thursday that see inflation at 2% this year, 1.6% in 2026 and 2% in 2027.
Kazaks welcomed the new forecasts but warned the dip next year, which the ECB chalked up to a stronger euro and cheaper fuel, called for vigilance.
“We are in a good place, we have delivered inflation at 2%, but it’s important to maintain it at around 2%,” he said. “The staff forecast expects inflation to remain below 2% for some time so we have to remain vigilant and see what happens in the economy.”
(Reporting by Francesco Canepa; Editing by Jamie Freed)
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