Speaker 1: Bloomberg Audio Studios, podcasts.
Speaker 2: Radio news. Global central bankers have expressed their full solidarity
Speaker 2: with the Federal Reserve after the weekend's news as grand
Speaker 2: jury subpoenas had been served as part of a criminal
Speaker 2: investigation into the Central Bank and it's chaired Jerome Powell.
Speaker 2: This is happening at a time that central banks are
Speaker 2: facing more divergent interest rate paths as well. The ECB
Speaker 2: now not expected to alter rates for some time to
Speaker 2: discuss all of this. The Governor of the Bank of
Speaker 2: Latvia and ECP Governing Council member Martin Kazaks. Martins Kazaks,
Speaker 2: good morning. Great to see you in Brussels with us now.
Speaker 2: The ECB President signed that letter of support for Jerome
Speaker 2: Powell on behalf of the Governing Council, which you're a
Speaker 2: member of. What's your view of these events? How worrying
Speaker 2: is this for central bank independence?
Speaker 3: This is bad news because central bank independance is very
Speaker 3: critical for central banks to deliver good monetary policy. So
Speaker 3: the typical outcome that we see from the boss experiences
Speaker 3: with their morning central bank independence would be inflation device
Speaker 3: and the potential risk of the anchoring of expectations, which
Speaker 3: means that the adjustment through monetary policy might be more
Speaker 3: painful to the economy because one of the elements that
Speaker 3: we've seen in the past inflation phase, especially in Europe,
Speaker 3: has been unexpectedly law sacrifice ratios, and one of the
Speaker 3: reasons has been the credibility of the central bank policy
Speaker 3: that has allowed to move rates less to bring inflation down.
Speaker 3: So this is by all means bad news.
Speaker 1: Are you concerned about any pushback from a President Trump
Speaker 1: on this issue? New Zealand for example, and it's Foreign
Speaker 1: Affairs minister rebuking the RBNZ for signing that letter, saying
Speaker 1: that the RBNZ has no role nor should it involve
Speaker 1: itself in US domestic politics. Are you concerned about any
Speaker 1: push back from the US against the ECB or other
Speaker 1: central bankers for that letter.
Speaker 3: Well, I would not speculate on that, but I think
Speaker 3: let's be calm and really be aware in terms of
Speaker 3: the European case as well, that the independence of central
Speaker 3: banks and accountability of course of central banks as well,
Speaker 3: has allowed to deliver on the mandate. And that's why
Speaker 3: in terms of montre policy in Europe, we are in
Speaker 3: a good place. And an important element of that has
Speaker 3: been independence of the central bank. Independence of the central bank,
Speaker 3: in my view as well, allows to learn from mistakes
Speaker 3: because because then the assessment of the policy errors is
Speaker 3: frank and it is analysis based, it's not politically driven.
Speaker 3: So this is an advantage to have independent monetary policy
Speaker 3: rather than a burden.
Speaker 2: But could politicians in Europe perhaps be emboldened by what
Speaker 2: they see across the Atlantic. This is something that City
Speaker 2: Group has warned about that center bank independence could come
Speaker 2: under threat in Europe if the move towards shorter dated
Speaker 2: bond tempts politicians to push for lower interest rates. Is
Speaker 2: that a concern?
Speaker 3: Yes, the risks are there in my view, and they
Speaker 3: are very strong, especially if the policies become more short
Speaker 3: term mystic, they are more populist, and then you know,
Speaker 3: you do not value the stability and delivery of the
Speaker 3: long term policy efficiency. This is certainly a worry. But
Speaker 3: the outcome from such a move would of course be
Speaker 3: negative for the European population, so that would be a
Speaker 3: very bad choice.
Speaker 2: Are there particular members of the euro Area where you
Speaker 2: see that as being a risk.
Speaker 3: No, I would not comment on that. You know, things
Speaker 3: can happen in any country. You know, and the politics
Speaker 3: could move, but this has been the track record that
Speaker 3: we have been delivering in Europe, in my view, strengthens
Speaker 3: the case for dependence of the central bank because of
Speaker 3: it doing a good job so far. But as I mentioned,
Speaker 3: of course, independence should come hand in hand together with accountability.
Speaker 1: Okay, so accountability is sort of a necessary precursor in
Speaker 1: terms of the interest rate path. The head markets aren't
Speaker 1: pricing in any rate moves this year. Are you comfortable
Speaker 1: with that? Outlook?
Speaker 3: The mode is a brandy that we have had so
Speaker 3: far has been the appropriate one. So it's meeting by meeting,
Speaker 3: data dependent open mind, seeing what the trends in the
Speaker 3: economy are and then reacting to that, and this has
Speaker 3: allowed us to be in a good place. The decisions
Speaker 3: of the past years have been appropriate once and we
Speaker 3: are at the tour get spot on now as well
Speaker 3: at two percent, with services inflation as well gradually coming
Speaker 3: down to two percent. But it does not mean that
Speaker 3: we can be relaxed. Uncertainty remains very high, and that
Speaker 3: means that you know, there are multiple of shocks that
Speaker 3: might hit us, and that in my view still very
Speaker 3: strongly supports the current models operandi let's not give too
Speaker 3: much forward guidance in terms of the rates. What is
Speaker 3: important for the markets to understand is our reaction function
Speaker 3: and the market's understand it. In my view, so that
Speaker 3: is good news.
Speaker 2: Would something like an end to Russia's war in Ukraine
Speaker 2: be an issue that could shift your view and the
Speaker 2: Governing Council's view on interest rates in the future.
Speaker 3: That, of course would be one of the elements, because
Speaker 3: ending this negative shock would be beneficial. But of course
Speaker 3: one needs to understand what kind of piece is it
Speaker 3: going to be. Is it a good piece with economic growth,
Speaker 3: political certainty, or is it just a pause for another
Speaker 3: outbreak of a conflict. So the outcomes are likely to
Speaker 3: be very different. But this is only one of the shocks.
Speaker 3: There are many other shocks that are likely to shape
Speaker 3: the future parts of one Tree policy. One of those
Speaker 3: is the valuations in the financial markets, the risks potentially
Speaker 3: to financial stability if there is some nonlinear adjustment, But
Speaker 3: of course also in terms of you know, micropolicies as such,
Speaker 3: for instance, what happens with the Chinese trade to European markets,
Speaker 3: what happens with our European competitorness in our export markets?
Speaker 3: You know, that might weigh down on our economic activity,
Speaker 3: exert some deflationary pressure, so you can come up so
Speaker 3: many various scenarios that visibility still remains relatively low. But
Speaker 3: the good thing is that we are by and large
Speaker 3: within the baseline scenario and the current monetary policy is
Speaker 3: in my view, very appropriate. But meeting, unfortunately still meeting
Speaker 3: by meeting.
Speaker 2: On the issue of Ukraine. The European Commission is going
Speaker 2: to unveil its plans for Ukraine financing later today as well,
Speaker 2: which of course is an issue of joint debt. Do
Speaker 2: the Boulder threats on Greenland made by Donald Trump increased
Speaker 2: Do you think the chances of more joint debt being
Speaker 2: issued in Europe for defense spending?
Speaker 3: I think for defense join debt is a necessity. It
Speaker 3: is simply more efficient to resolve defense issues. But let
Speaker 3: me come back a bit in terms of a policy
Speaker 3: mix and structural change. Monetary policy, if I'm say so,
Speaker 3: has delivered, and it's somewhat boring now, which is good news.
Speaker 3: The action is not in monetary policy, but the action
Speaker 3: should be somewhere else, and that is structural policies in
Speaker 3: Europe with somewhat in my view spend too much time
Speaker 3: in terms of thinking, you know, what could be the
Speaker 3: next blow, next outburst of volatility that we will need
Speaker 3: to take care of. But I would say that the
Speaker 3: risks are so many they could hit all across the board.
Speaker 3: And the key choice and strategy for Europe would be
Speaker 3: to make our economy stronger overall, to deliver on the
Speaker 3: increase in living standards, to continue increasing living standards for
Speaker 3: our population, to strengthen our democracies, and also to make
Speaker 3: European economy much much stronger and more resilient in this multipolar,
Speaker 3: geopolitically volatile world. And the only thing to do it
Speaker 3: is to make our economy stronger. And these are all
Speaker 3: the structural reforms that have been discussed in the past.
Speaker 3: As for financial markets, of course, it is deepening of
Speaker 3: financial markets single market in financial services that would be
Speaker 3: the first step that we would need to take, and
Speaker 3: there've been some moves on that, but still relatively timid.
Speaker 3: And sometimes the understanding, at least in my way, is like,
Speaker 3: you know, there's always a question, why do we choose
Speaker 3: a lot of nothing rather than a bit from something.
Speaker 3: By moving into more single market environment, we would unlook
Speaker 3: the scale we would make our financial markets more dynamic
Speaker 3: and able to finance our economies, and I would say
Speaker 3: that is the major move that we need. We need
Speaker 3: structural improvements to make our economies more dynamic, and this
Speaker 3: will support defense spending. This will support also job political
Speaker 3: standing of Europe and we would be pushed around much less.
Speaker 3: So it's all about the underlying fundamental strength of the
Speaker 3: economy and monetary policy by providing stability and being at
Speaker 3: the target, will help with that. But it's not the
Speaker 3: job of monetary policy to resolve productivity problems and single
Speaker 3: market problems.