ECB’s Knot: ‘I Would Be in No Hurry to Cut Interest Rates’

20 December 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Wednesday said that he would not be in a rush to consider reducing interest rates, as there were still relevant economic developments to be assessed.

In an interview with German financial daily Boersen-Zeitung, Knot, who heads De Nederlandsche Bank, said, ‘Based on the information available today, I think it is rather unlikely unlikely’ for interest rates to be cut in the first half of 2024. 'I would be in no hurry to cut interest rates.'

‘But we are data-dependent and not time-dependent. We have to get inflation to 2% by 2025 – that's crucial. And a lot has to go well still for that to happen. So we have to remain vigilant’, he said.

It was necessary to watch wage developments to determine that inflation was consistently on the right path, he said.

‘And we will have to see some good news from the wage front before we can say that inflation has also durably turned the corner’, he said.

The combination of a strong labour market and real wages formed a ‘credible basis for an upturn in 2024’, he said.

Addressing the market’s expectations of aggressive interest rate cuts starting in March 2024, Knot said that ‘markets always tend to be optimistic at the end of the year, often followed by a hangover in January.’

‘Any eventual withdrawal of monetary policy restriction can and must be gradual and patient’, he said.

He differed with the assumption that the ECB had gone too far with monetary tightening, but noted that ‘it doesn't mean we should be blind to the possibility of excessive tightening at some point in the future.’

‘I fully agree with her [ECB President Christine Lagarde] that a premature declaration of victory is still the dominant concern’, he said.