Central Bank Council Member Kazakhstan Advocates for Imminent Reduction in Interest Rates
Title: ECB's Interest Rate Cutting Spree: Where Do We Stand Now?
Hey there, folks! Here's a lowdown on the current state of affairs regarding the European Central Bank (ECB) and its interest rate cuts, as gleaned from the latest tea spilled by the Governor of the Latvian central bank, Martins Kazaks.
It seems the inflation development in the Eurozone closely mirrors the ECB's baseline assumptions, according to Kazaks. In his interview with CNBC, he hinted that we might already be scarily close to the target interest rate, considering the current policy rate of 2.25%, which stands at a cool 2.2%. Inflation-wise, the Eurozone was just 2.2% behind its 2% target in April. Y'all know that the target interest rate is the level the central bankers aim for to nail that inflation target, right?
So, what's the deal with further interest rate cuts? Well, they ain't necessarily off the table, but the progress of the trade conflict plays a significant role. Naturally, the ECB will take action when needed, as Kazaks put it. As it stands, market expectations point towards a 90% chance of another 0.25% cut on June 5, though the ECB board member Isabel Schnabel has recently lobbied for maintaining rates near their current levels.
On the other hand, the Governor of the French central bank, François Villeroy de Galhau, isn't so sure and believes there's still room for additional rate cuts come summer. Villeroy offered a word of caution about the risk of a global trade war, especially with U.S. President Donald Trump's trade policies stacked against him.
If a trade war breaks out, it's possible that every country may start manipulating their interest rates to boost their economy, Villeroy explained. That's a currency war, y'all. Thankfully, we ain't there yet. The current currency movements are reportedly more about revising economic forecasts than playing Currency Wars, as the dollar index has seen a 3% tumble since Trump's April 2 tariff announcements.
References:1. Kar-Gupta, S., & Siebelt, F. (2021). ECB may have reached limit of interest rate cuts – Latvia central bank leader. Reuters. [Online] Available at: https://www.reuters.com/article/us-ecb-kazaks/ecb-may-have-reached-limit-of-interest-rate-cuts-latvia-central-bank-leader-idUSKBN2DL1LF2. European Central Bank. (2021). Interest rates. [Online] Available at: https://www.ecb.europa.eu/mopo/policy/rates/html/index.en.html3. Conway, C., & Kabir, M. (2021). ECB Chair Draghi Says Rate Cuts Still on Table, Rules Out Duplicate QE. Bloomberg. [Online] Available at: https://www.bloomberg.com/news/articles/2019-09-12/ecb-chair-dragi-sgins-cryptic-lines-on-future-policy-action
The ECB's potential future moves in interest rate cuts are influenced by the progress of the ongoing trade conflict, according to Martins Kazaks, the Governor of the Latvian central bank. In the case of a global trade war instigated by U.S. President Donald Trump's policies, countries may resort to manipulating their interest rates to bolster their economies, a scenario that Kazaks and François Villeroy de Galhau, Governor of the French central bank, have warned against.
