FRANKFURT, Feb 9 (Reuters) – A major deviation in economic and inflation trends would be needed for the European Central Bank to consider changing policy, Slovak central bank chief Peter Kazimir said on Monday, just days after the bank kept interest rates unchanged.
The ECB has been on hold since ending a rate cuts spree in June, arguing that inflation will hold around its 2% target, boosting market bets that policy will be steady all year before possible rate hikes next year.
“Looking forward, it would take a major departure from our baseline scenario for me to consider recalibrating the policy setting,” Kazimir, who is generally considered a policy hawk, said in a blog post. “For now, the baseline holds.”
The ECB’s policy debate has been in an unusually narrow range in recent months, with nearly all public speakers voicing a similar view, even if some have warned that downside risks to inflation remain and this could eventually unsettle the ECB’s “good place” narrative.
Kazimir repeated the ECB’s view that inflation risks are balanced but argued that this hinged on favourable energy price developments.
Stronger economic growth could put upward pressure on prices while a further appreciation of the euro could be a drag, since that lowers import costs.
“Any further appreciation will have to be evaluated against the relative strength of the euro area’s economic performance and ultimately our medium-term inflation target,” he said.
In any case, uncertainty remains exceptionally high, volatility is likely to persist in the coming months and the overall situation is fragile, Kazimir added.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)
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