(Bloomberg) -- European Central Bank Governing Council member Martins Kazaks urged patience in determining monetary policy, warning that the gravest error would be a premature easing that allowed inflation to bounce back.
While interest rates “should start to go down,” barring any major shocks, the ECB should be in no rush to begin the process, the Latvian official told Bloomberg Television's Maria Tadeo.
“That would be by all mean worse than waiting just a bit,” he said Friday in Riga. “We've seen from the 70s and 80s that if one starts to be relaxed too early then there's the risk that inflation starts to come back and then one would need to raise rates much more.”
The remarks come less than a day after the ECB kept its deposit rate at a record 4% for a third straight meeting. With President Christine Lagarde pushing back less forcefully than expected against market bets for a cut as early as the spring, investors stepped up their April wagers. Policymakers have appeared to be converging around a June move.
Despite a sharp retreat in inflation last year, officials aren't ready to declare victory and are particularly worried that strong wage growth could sustain price pressures.
Labor-market risks remain at the forefront as unemployment remains low, according to Slovenian central bank chief Bostjan Vasle.
“All of this is partially reflected in wage growth, which is currently significantly above the level that would be consistent with 2% inflation,” he told radio station RTVSLO on Friday.
While price gains in the 20-nation euro zone re-accelerated in December — to 2.9% from a year ago — this was mainly due to base effects and the ECB expects the slowdown to resume in 2024, albeit more moderately.
At the same time, the economy is struggling and may have suffered a mild downturn in the second half of last year. An estimate for the final three months of 2023 is due on Tuesday from Eurostat. Kazaks acknowledged that a recession is a possibility.
Returning to interest rates, he said that the starting point for any easing cycle will shape the increments in which borrowing costs are reduced.
“There are many ways to get to 2% — you could do earlier smaller steps or you could somewhat later larger steps — that will be all data dependent,” Kazaks said.
--With assistance from Jan Bratanic.
(Updates with Slovenian central bank governor starting in sixth paragraph.)
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.