Published: 20.09.2023

The European Central Bank can still raise borrowing costs if needed, ECB policymaker Martins Kazaks said on Friday, pushing back against some market bets that euro zone interest rates will start falling next spring.

The ECB raised its key interest rate to a record high of 4% on Thursday but, with the euro zone economy in the doldrums, signalled that its 10th straight hike was likely to be its last -- prompting traders to ramp up speculation on upcoming rate cuts.

Kazaks, Latvia's central bank governor, dismissed the notion, popularised by market pundits, that its move was a "dovish hike" that marked the end of the ECB's fight against high inflation.

"I’m comfortable with the current level of rates and I think we’re on track to reach 2% in the second half of 2025," he told Reuters on the sidelines of a meeting of the European Union's financial policymakers in Santiago de Compostela, Spain.

"But if the data tells us that we need another hike, we’ll do it.”

Money markets price in a slight chance of a rate cut as early as April and fully expect a 25-basis-point reduction by July.

"Markets have to take a position but (an April rate hike) is inconsistent with our macro scenario," he said. "We’ve clearly said we’ll stay in restrictive territory for as long as necessary to get inflation to 2%."

Before rates can be cut, however, the ECB must make a decision on hoovering up some of the cash it has pumped into the banking system in the last decade, when inflation was too low, through a number of bond-buying programmes.

"There is excess liquidity that has to be removed and we’ll have to discuss it," he said. "It has to happen before rates are cut."

Latest News


Stranded Capital in Production Networks: Implications for the Economy of the Euro Area

Working paper 6/2023

Latvijas Banka announces a Competition of Student Scientific Research Papers

To promote the research and analysis of Latvia's and euro area's...

ECB selects “European culture” and “Rivers and birds” as possible themes for future euro banknotes

  In short “European culture” and “Rivers and...

Financial sector agrees on continued measures ensuring access to cash

Latvijas Banka, Finance Latvia Association and the commercial banks...

Latvijas Banka is issuing a coin dedicated to the anniversary of the Museum of the History of Riga and Navigation

On Wednesday, 29 November, Latvijas Banka will issue an unusually...

Internal control systems of Latvian financial institutions have been improved substantially, proportionate risk management and risk appetite need to be strengthened

Over the past years, the risk level of money laundering and terrorism...

Latvijas Banka issues a gold collector coin "The Golden Horses"

On Wednesday, 15 November, Latvijas Banka is issuing a gold...

Opening remarks by Mārtiņš Kazāks

Ladies and gentlemen, Welcome to the annual conference of Latvijas...

Latvijas Banka issues authorisation to provide crowdfunding services to SE Capitalia

On 1 November, the Supervision Committee of Latvijas Banka...

Management framework for critical financial services has been updated

As part of its efforts to strengthen the resilience of the Latvian...

Latvijas Banka is issuing a coin dedicated to basketball in Latvia

On Tuesday, 31 October, Latvijas Banka will issue a silver...

Latvijas Banka transfers 165 000 euro from the coin sales to Ukraine

Latvijas Banka has transferred a donation of 164 684.52 euro...