MNI INTERVIEW: ECB Has “Nice Path” To 2% Price Target – Kazaks

The European Central Bank is sitting “quite nice on the path” to reach sustainable 2% inflation in the second half of 2025, but policymakers must not allow themselves to settle on achieving their target any later, Bank of Latvia Governor Martins Kazaks told MNI.

“There is a path to 2%. Not a unique, predetermined path, we can be flexible how we go about it, how the data arrives, but we are quite nice on the path to 2%,” he said in an interview on the sidelines of the ECB’s forum in Sintra.

Market pricing for one or two more cuts in 2024 is consistent with the ECB’s baseline scenario, said Kazaks, adding that policy action “would be in that ballpark,” assuming economic data is roughly in line with projections.

“We are closer to a situation that is more standard, currently no new major shocks, and that is one of the reasons our forecasts are getting more precise,” he said, noting that the ECB has learned from the energy crisis and other recent non-linear shocks.

GAINING FUTURE CREDIBILITY

Returning inflation to target next year will add to the ECB’s credibility with consumers despite the sharp deviation from decades of near-steady prices, Kazaks said.

“In terms of credibility, if we pull this through, as it currently looks like, then I think we should have gained credibility and that might make our next job somewhat easier. Because we have a proven track record”, he said, adding that the recent inflation spike was “the first true test” of the inflation-targeting regime.

“If we reach 2% in the not-too-distant future, we will have passed the test with relatively good grades,” he said, stressing the importance of hitting 2% by no later than the end of 2025.

“If you get pushed away from 2% before hitting the target, then people might say ‘ah, they didn’t really try’, which is not the case,” he said.