FX.co ★ ECB's Kazaks Says Falling Inflation, Weak Economy Allow For Lowering Rates Further

Eurozone inflation rates are continuing to decline, while economic growth in the single currency area remains lackluster, paving the way for a gradual reduction in interest rates, according to Martins Kazaks, a member of the European Central Bank (ECB) Governing Council. Kazaks made these remarks on Monday.

This year, the ECB has reduced interest rates three times, with the latest cut being 25 basis points earlier this month. Another rate reduction is anticipated in December, as policymakers grow increasingly concerned about economic growth in the euro area.

Household consumption in the eurozone has been lower than expected, contributing significantly to the sluggish economy, Kazaks, who serves as the chief of the Bank of Latvia, pointed out in a blog post.

"Risks to growth continue to tilt downward," Kazaks highlighted. "If the recovery faces further delays, this could potentially lead to job cuts as maintaining employment becomes financially burdensome, subsequently pushing inflation well below the target."

Despite this, the ECB aims to achieve a "soft landing" that avoids a rapid rise in unemployment and a possible recession, Kazaks noted, echoing the sentiments of ECB President Christine Lagarde from the previous week.

Kazaks reiterated that ECB rates will continue to ease, given that inflation is consistently moving towards the 2 percent target.

In a related development, Gediminas Simkus, chief of the Bank of Lithuania, confirmed on Monday that the future trajectory for ECB rates is indeed downward.

Conversely, Slovakia's central bank governor, Peter Kazimir, expressed reluctance to provide a definitive indication regarding easing in December, stating a preference for more conclusive evidence of accelerating disinflation.

"All options remain on the table," Kazimir remarked in his blog regarding the upcoming ECB decision in December.