By Francesco Canepa and John O’Donnell
FRANKFURT (Reuters) – European Central Bank policymaker Martins Kazaks said on Tuesday he was “comfortable” with investor bets on three interest rate cuts by the central bank by the end of the year.
Many ECB policymakers have expressed support for a first reduction in borrowing costs from their current record highs, most likely in June, with the debate now focused on how many more cuts would follow.
Money markets are pencilling in three cuts by December with some chance of a fourth, which would lower the 4% rate the ECB pays on bank deposits to 3.25% or 3.0%.
Kazaks, who in the past resisted speculation about imminent rate reduction, told Reuters this time market pricing was in line with the ECB’s own economic projections, which see inflation closing in on its 2% target by end of the year.
“If I take a look at the current market pricing, for the last month or so, I’m quite comfortable with that,” the Latvian governor said in an interview on Tuesday.
Kazaks, however, cautioned his words should not be taken as a commitment, or “forward guidance” in central bank parlance.
“I will not provide forward guidance saying there will be three cuts because we’ll take a look at each meeting,” he said.
The ECB will hold policy meetings on April 11, June 6, July 18, Sept 12, Oct 17 and Dec 12.
Kazaks said moving at meetings at which new forecasts are published — that is in June, September and December — was “more straightforward”, echoing his Dutch colleague Klaas Knot.
By contrast, Greek central bank governor Yannis Stournaras said two cuts before the ECB’s summer break in August seemed reasonable, followed by two more by the end of the year.
Kazaks stressed there was a difference between cutting rates three or four times but, with the policy rate now at 4%, there was still a long way to go before the ECB’s policy was no longer restrictive.
“Even if we start reducing the rate it’s going to take some time before we get the neutral rate,” he said. “By reducing the rate we only reduce the tightness of monetary policy, but it will remain restrictive.”
(Reporting by Francesco Canepa and John O’Donnell; Editing by Alexander Smith)
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