ECB’s Wunsch: Need a Terminal Rate of at Least 3.5% If Core Remains Persistently High

3 February 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Pierre Wunsch on Tuesday said that the ECB’s terminal rate needed to be at least 3.5% if core inflation did not retreat.

In an interview with Reuters, Wunsch, who heads the Belgian National Bank, said, ‘I don't think we're going to move from 50bp [in March] to zero. It might be another 50bp or we might be moving to 25. I will certainly not exclude another 50bp, but that's going to be dependent on the data.’

‘If core remains persistent, if we keep seeing core momentum being close to 5%, for me a terminal rate of 3.5% would be a minimum’, he was quoted as saying by the news agency. ‘But I don't want to give any number that is not conditional on incoming data.’

US and UK monetary policy in terms of core inflation offered a frame of reference for the Eurozone, he suggested. If European core inflation were at a level like those jurisdictions, then why, he wondered rhetorically, would the ECB only hike rates to 3%, when the others had gone clearly above 4%?

‘I'm not saying we need to go to 4% ... but if incoming data continue to show very persistent core, we will have to look at what the U.S. and UK seem to consider as a restrictive enough interest rates to bring inflation back to 2%’ he said.