A deep recession could force the ECB to pause

(Boursier.com) — Two days before a meeting of the European Central Bank, which is expected to say the least, Martins Kazaks, member of the Board of Governors, believes that the Institution could slow the pace of interest rate increases if a deep recession in the euro area dampens inflation. “The risks of a generalized and prolonged recession with a reducing impact on inflation would indicate a slowdown in the pace of rate hikes or a pause,” the Latvian central banker told ‘Eurofi Magazine’.

“The persistence of core inflation and its impact on inflation expectations as well as wage dynamics will be key in determining whether a steady pace of rising interest rates should be maintained,” the leader added. Martins Kazaks also states that the ECB will not hesitate to raise rates above the so-called neutral rate, where monetary policy is neither expansionary nor restrictive, if necessary.