WEBVTT - ECB's Kazaks Talks Central Bank Pressure 0:00:02.360 --> 0:00:06.000 Bloomberg Audio Studios, podcasts. 0:00:05.640 --> 0:00:10.240 Radio news. Global central bankers have expressed their full solidarity 0:00:10.280 --> 0:00:12.880 with the Federal Reserve after the weekend's news as grand 0:00:12.960 --> 0:00:15.440 jury subpoenas had been served as part of a criminal 0:00:15.480 --> 0:00:18.560 investigation into the Central Bank and it's chaired Jerome Powell. 0:00:18.760 --> 0:00:20.799 This is happening at a time that central banks are 0:00:20.800 --> 0:00:23.640 facing more divergent interest rate paths as well. The ECB 0:00:23.760 --> 0:00:26.880 now not expected to alter rates for some time to 0:00:26.920 --> 0:00:28.520 discuss all of this. The Governor of the Bank of 0:00:28.600 --> 0:00:32.360 Latvia and ECP Governing Council member Martin Kazaks. Martins Kazaks, 0:00:32.400 --> 0:00:35.559 good morning. Great to see you in Brussels with us now. 0:00:35.560 --> 0:00:38.040 The ECB President signed that letter of support for Jerome 0:00:38.080 --> 0:00:40.000 Powell on behalf of the Governing Council, which you're a 0:00:40.040 --> 0:00:43.239 member of. What's your view of these events? How worrying 0:00:43.360 --> 0:00:45.200 is this for central bank independence? 0:00:45.760 --> 0:00:49.280 This is bad news because central bank independance is very 0:00:49.280 --> 0:00:53.760 critical for central banks to deliver good monetary policy. So 0:00:54.640 --> 0:00:58.280 the typical outcome that we see from the boss experiences 0:00:59.520 --> 0:01:04.480 with their morning central bank independence would be inflation device 0:01:05.000 --> 0:01:10.039 and the potential risk of the anchoring of expectations, which 0:01:10.080 --> 0:01:15.560 means that the adjustment through monetary policy might be more 0:01:15.560 --> 0:01:19.959 painful to the economy because one of the elements that 0:01:20.000 --> 0:01:23.600 we've seen in the past inflation phase, especially in Europe, 0:01:24.319 --> 0:01:29.360 has been unexpectedly law sacrifice ratios, and one of the 0:01:29.360 --> 0:01:32.640 reasons has been the credibility of the central bank policy 0:01:32.760 --> 0:01:37.400 that has allowed to move rates less to bring inflation down. 0:01:38.319 --> 0:01:41.200 So this is by all means bad news. 0:01:41.400 --> 0:01:44.600 Are you concerned about any pushback from a President Trump 0:01:44.600 --> 0:01:47.960 on this issue? New Zealand for example, and it's Foreign 0:01:47.960 --> 0:01:53.520 Affairs minister rebuking the RBNZ for signing that letter, saying 0:01:53.520 --> 0:01:56.120 that the RBNZ has no role nor should it involve 0:01:56.160 --> 0:01:59.480 itself in US domestic politics. Are you concerned about any 0:01:59.640 --> 0:02:02.440 push back from the US against the ECB or other 0:02:02.920 --> 0:02:05.040 central bankers for that letter. 0:02:06.040 --> 0:02:08.720 Well, I would not speculate on that, but I think 0:02:09.720 --> 0:02:15.600 let's be calm and really be aware in terms of 0:02:15.639 --> 0:02:19.560 the European case as well, that the independence of central 0:02:19.600 --> 0:02:23.639 banks and accountability of course of central banks as well, 0:02:23.840 --> 0:02:28.119 has allowed to deliver on the mandate. And that's why 0:02:28.160 --> 0:02:30.760 in terms of montre policy in Europe, we are in 0:02:30.800 --> 0:02:34.359 a good place. And an important element of that has 0:02:34.440 --> 0:02:39.440 been independence of the central bank. Independence of the central bank, 0:02:39.480 --> 0:02:43.160 in my view as well, allows to learn from mistakes 0:02:43.360 --> 0:02:49.720 because because then the assessment of the policy errors is 0:02:49.760 --> 0:02:56.680 frank and it is analysis based, it's not politically driven. 0:02:56.760 --> 0:03:01.920 So this is an advantage to have independent monetary policy 0:03:02.280 --> 0:03:03.359 rather than a burden. 0:03:03.720 --> 0:03:07.160 But could politicians in Europe perhaps be emboldened by what 0:03:07.240 --> 0:03:09.920 they see across the Atlantic. This is something that City 0:03:09.960 --> 0:03:12.600 Group has warned about that center bank independence could come 0:03:12.680 --> 0:03:15.880 under threat in Europe if the move towards shorter dated 0:03:15.960 --> 0:03:20.080 bond tempts politicians to push for lower interest rates. Is 0:03:20.080 --> 0:03:20.840 that a concern? 0:03:21.120 --> 0:03:23.040 Yes, the risks are there in my view, and they 0:03:23.080 --> 0:03:29.200 are very strong, especially if the policies become more short 0:03:29.280 --> 0:03:33.320 term mystic, they are more populist, and then you know, 0:03:33.400 --> 0:03:36.040 you do not value the stability and delivery of the 0:03:36.400 --> 0:03:40.640 long term policy efficiency. This is certainly a worry. But 0:03:41.760 --> 0:03:45.320 the outcome from such a move would of course be 0:03:45.480 --> 0:03:50.560 negative for the European population, so that would be a 0:03:50.640 --> 0:03:51.440 very bad choice. 0:03:51.560 --> 0:03:54.280 Are there particular members of the euro Area where you 0:03:54.280 --> 0:03:55.280 see that as being a risk. 0:03:55.800 --> 0:03:59.320 No, I would not comment on that. You know, things 0:03:59.360 --> 0:04:04.720 can happen in any country. You know, and the politics 0:04:04.920 --> 0:04:09.480 could move, but this has been the track record that 0:04:09.520 --> 0:04:14.160 we have been delivering in Europe, in my view, strengthens 0:04:14.200 --> 0:04:18.200 the case for dependence of the central bank because of 0:04:18.960 --> 0:04:22.200 it doing a good job so far. But as I mentioned, 0:04:22.200 --> 0:04:27.159 of course, independence should come hand in hand together with accountability. 0:04:27.440 --> 0:04:31.279 Okay, so accountability is sort of a necessary precursor in 0:04:31.360 --> 0:04:33.919 terms of the interest rate path. The head markets aren't 0:04:33.920 --> 0:04:36.920 pricing in any rate moves this year. Are you comfortable 0:04:36.960 --> 0:04:37.720 with that? Outlook? 0:04:38.480 --> 0:04:40.120 The mode is a brandy that we have had so 0:04:40.200 --> 0:04:44.480 far has been the appropriate one. So it's meeting by meeting, 0:04:45.560 --> 0:04:50.960 data dependent open mind, seeing what the trends in the 0:04:50.960 --> 0:04:53.560 economy are and then reacting to that, and this has 0:04:53.600 --> 0:04:56.240 allowed us to be in a good place. The decisions 0:04:56.240 --> 0:04:59.320 of the past years have been appropriate once and we 0:04:59.360 --> 0:05:02.360 are at the tour get spot on now as well 0:05:02.360 --> 0:05:07.960 at two percent, with services inflation as well gradually coming 0:05:08.000 --> 0:05:12.440 down to two percent. But it does not mean that 0:05:13.040 --> 0:05:18.640 we can be relaxed. Uncertainty remains very high, and that 0:05:18.800 --> 0:05:22.000 means that you know, there are multiple of shocks that 0:05:22.160 --> 0:05:25.000 might hit us, and that in my view still very 0:05:25.040 --> 0:05:32.039 strongly supports the current models operandi let's not give too 0:05:32.160 --> 0:05:35.680 much forward guidance in terms of the rates. What is 0:05:35.720 --> 0:05:38.760 important for the markets to understand is our reaction function 0:05:39.480 --> 0:05:42.120 and the market's understand it. In my view, so that 0:05:42.240 --> 0:05:42.839 is good news. 0:05:42.960 --> 0:05:46.480 Would something like an end to Russia's war in Ukraine 0:05:46.720 --> 0:05:49.359 be an issue that could shift your view and the 0:05:49.360 --> 0:05:53.480 Governing Council's view on interest rates in the future. 0:05:54.040 --> 0:05:57.360 That, of course would be one of the elements, because 0:05:58.600 --> 0:06:02.640 ending this negative shock would be beneficial. But of course 0:06:02.680 --> 0:06:05.080 one needs to understand what kind of piece is it 0:06:05.120 --> 0:06:10.200 going to be. Is it a good piece with economic growth, 0:06:10.400 --> 0:06:14.080 political certainty, or is it just a pause for another 0:06:14.480 --> 0:06:17.680 outbreak of a conflict. So the outcomes are likely to 0:06:17.720 --> 0:06:22.240 be very different. But this is only one of the shocks. 0:06:23.240 --> 0:06:25.360 There are many other shocks that are likely to shape 0:06:25.360 --> 0:06:28.080 the future parts of one Tree policy. One of those 0:06:28.200 --> 0:06:32.880 is the valuations in the financial markets, the risks potentially 0:06:32.960 --> 0:06:36.920 to financial stability if there is some nonlinear adjustment, But 0:06:36.960 --> 0:06:42.560 of course also in terms of you know, micropolicies as such, 0:06:42.640 --> 0:06:47.080 for instance, what happens with the Chinese trade to European markets, 0:06:47.160 --> 0:06:51.040 what happens with our European competitorness in our export markets? 0:06:51.320 --> 0:06:54.320 You know, that might weigh down on our economic activity, 0:06:55.600 --> 0:07:00.320 exert some deflationary pressure, so you can come up so 0:07:00.440 --> 0:07:07.520 many various scenarios that visibility still remains relatively low. But 0:07:07.600 --> 0:07:10.200 the good thing is that we are by and large 0:07:10.840 --> 0:07:15.000 within the baseline scenario and the current monetary policy is 0:07:15.040 --> 0:07:19.320 in my view, very appropriate. But meeting, unfortunately still meeting 0:07:19.400 --> 0:07:20.120 by meeting. 0:07:20.360 --> 0:07:22.280 On the issue of Ukraine. The European Commission is going 0:07:22.320 --> 0:07:26.600 to unveil its plans for Ukraine financing later today as well, 0:07:26.680 --> 0:07:30.000 which of course is an issue of joint debt. Do 0:07:30.680 --> 0:07:33.840 the Boulder threats on Greenland made by Donald Trump increased 0:07:33.840 --> 0:07:36.280 Do you think the chances of more joint debt being 0:07:36.320 --> 0:07:37.880 issued in Europe for defense spending? 0:07:37.960 --> 0:07:41.200 I think for defense join debt is a necessity. It 0:07:41.280 --> 0:07:45.360 is simply more efficient to resolve defense issues. But let 0:07:45.360 --> 0:07:48.080 me come back a bit in terms of a policy 0:07:48.120 --> 0:07:52.560 mix and structural change. Monetary policy, if I'm say so, 0:07:52.680 --> 0:07:56.840 has delivered, and it's somewhat boring now, which is good news. 0:07:56.920 --> 0:07:59.680 The action is not in monetary policy, but the action 0:07:59.720 --> 0:08:03.680 should be somewhere else, and that is structural policies in 0:08:03.720 --> 0:08:06.560 Europe with somewhat in my view spend too much time 0:08:06.600 --> 0:08:08.960 in terms of thinking, you know, what could be the 0:08:09.000 --> 0:08:14.680 next blow, next outburst of volatility that we will need 0:08:14.720 --> 0:08:17.600 to take care of. But I would say that the 0:08:17.680 --> 0:08:21.000 risks are so many they could hit all across the board. 0:08:21.480 --> 0:08:25.960 And the key choice and strategy for Europe would be 0:08:26.080 --> 0:08:31.120 to make our economy stronger overall, to deliver on the 0:08:31.280 --> 0:08:34.800 increase in living standards, to continue increasing living standards for 0:08:34.880 --> 0:08:39.680 our population, to strengthen our democracies, and also to make 0:08:39.720 --> 0:08:45.640 European economy much much stronger and more resilient in this multipolar, 0:08:45.720 --> 0:08:49.000 geopolitically volatile world. And the only thing to do it 0:08:49.080 --> 0:08:52.840 is to make our economy stronger. And these are all 0:08:52.880 --> 0:08:56.360 the structural reforms that have been discussed in the past. 0:08:56.440 --> 0:08:59.480 As for financial markets, of course, it is deepening of 0:08:59.520 --> 0:09:04.640 financial markets single market in financial services that would be 0:09:04.679 --> 0:09:09.480 the first step that we would need to take, and 0:09:09.520 --> 0:09:12.760 there've been some moves on that, but still relatively timid. 0:09:12.800 --> 0:09:15.200 And sometimes the understanding, at least in my way, is like, 0:09:15.440 --> 0:09:18.079 you know, there's always a question, why do we choose 0:09:18.840 --> 0:09:22.960 a lot of nothing rather than a bit from something. 0:09:23.520 --> 0:09:28.600 By moving into more single market environment, we would unlook 0:09:28.640 --> 0:09:32.520 the scale we would make our financial markets more dynamic 0:09:32.600 --> 0:09:36.080 and able to finance our economies, and I would say 0:09:36.120 --> 0:09:38.880 that is the major move that we need. We need 0:09:38.920 --> 0:09:44.200 structural improvements to make our economies more dynamic, and this 0:09:44.360 --> 0:09:51.160 will support defense spending. This will support also job political 0:09:51.320 --> 0:09:54.880 standing of Europe and we would be pushed around much less. 0:09:55.080 --> 0:09:59.360 So it's all about the underlying fundamental strength of the 0:09:59.360 --> 0:10:04.560 economy and monetary policy by providing stability and being at 0:10:04.559 --> 0:10:08.160 the target, will help with that. But it's not the 0:10:08.320 --> 0:10:12.760 job of monetary policy to resolve productivity problems and single 0:10:12.800 --> 0:10:13.640 market problems.