Eurozone inflation rates continue to fall and growth in the single currency economy remains sluggish, thus allowing for a gradual reduction in interest rates, European Central Bank Governing Council member Martins Kazaks said on Monday.
The ECB has lowered interest rates thrice this year, the latest being the 25 basis points cut this month, and is widely expected to announce another reduction in December as policymakers grow increasingly worried over the euro area growth.
Household consumption in the euro area has so far been weaker than expected and is one of the main reasons for the sluggish economy, Kazaks, who is the chief of the Bank of Latvia, said in a blog.
“Risks to growth remain on the downside,” Kazaks said. “If the recovery is delayed, this could lead to layoffs (as it becomes too expensive to keep workers), risking inflation to be driven significantly below target.”
Despite this risk, the ECB continues to look for a “soft landing” without a rapid rise in unemployment and recession, Kazaks said, echoing remarks made by ECB President Christine Lagarde last week.
Kazaks said ECB rates will continue to decrease as inflation is on a sustainable path of return to the 2 percent target.
Elsewhere, the Bank of Lithuania chief Gediminas Simkus also signaled on Monday that the future direction for ECB rates is lower.
Meanwhile, the Slovakia central bank governor Peter Kazimir was hesitant to give a clear signal on easing in December, saying he wanted more evidence of an accelerating pace of disinflation.
“All options remain on the table,” Kazimir said in a blog, with regard to the ECB decision in December.
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