ECB’s Wunsch: Cannot Promise Our Policy Exit Will Be Completely Smooth

7 April 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s exit from its ultra-loose policy stance will not necessarily be without market friction, ECB Governing Council member Pierre Wunsch said Wednesday.

In an interview with Bloomberg, Wunsch, who heads the National Bank of Belgium, said that monetary policy ‘inflection points need to be handled with care, we’ve seen that with the taper tantrum’.

‘I can’t promise that when we can start discussing an exit - and I hope we can within a reasonable time frame - that it’s going to be completely smooth’, he said, according to the news agency.

Wunsch seemed at once to look forward to such a discussion as well as to be willing to add more accommodation if necessary.

‘A lot of the conditions are met for a sustained recovery when we get out of lockdown, and if it’s not enough then we’ll have to do more’, he said. ‘I hope that at some point we’re going to discuss an exit, because it will show that our policy is effective. But exit is never a piece of cake.’

The ECB’s staff macroeconomic forecasts included ‘room to take some bad news’ without a downward revision for 2021, he said.

‘If there would be at some point structural damage because of a lockdown lasting much longer in Europe than in other areas, then I guess at some point we could decide to go beyond March,’ he said. ‘But conversely, if the news would be systematically good, at some point it will go with some tightening of nominal rates and that’s something that’s even desirable.’