ECB's Latest Rate Cut and Future Prospects

European Central Bank Governing Council Member and Latvian Central Bank Governor, Martins Kazaks, has underscored the necessity for sustained interest rate reductions. This follows the ECB's most recent 25-basis-point cut, marking the fourth such action this year. In a recent blog post, Kazaks asserted that the "path for interest rates is clearly down", emphasizing the need for further reductions to bolster economic growth.

Kazaks highlighted that the neutral rate is closer to 2% than 3%, implying potential future cuts. He also noted that new loans will become more affordable, thereby easing borrowing and repayment conditions. Despite November's inflation at 2.3% in both Latvia and the euro area, Kazaks anticipates a decline by spring 2025, moving closer to the ECB's target.

Acknowledging uncertainties regarding inflation's containment, Kazaks advocated for a step-by-step approach to rate adjustments, reserving the option for larger cuts if economic conditions demand.