ECB’s Knot: Definitely Need More Data on Wages to Start Easing

17 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Wednesday said that more information on wage developments was necessary before there could be a reduction in interest rates.

In an interview with CNBC International TV on the margins of the Annual Meeting of the World Economic Forum in Davos, Switzerland, Knot, who heads De Nederlandsche Bank, said, ‘If we are going to remove some of the restriction that we currently have in place, it will be a very gradual pullback, but not a head over heels pullback, and we definitely will need more data on wages.’

‘We will need to see that wages will also have turned the corner because we are not going to have disinflation, according to our projections, if simultaneously we will not also see a turnaround in wages’, he continued.

An ‘incredibly tight’ labour market and geopolitical uncertainties called for the ECB to remain alert, he said.

Currently, interest rates were at a plateau, and it was ‘rather unlikely that we would have to increase rates again’, he said.

‘If some of the upside risks were to materialise… I think we would invest more in duration of the current level of interest rates rather than thinking about additional increases to them’, he said. ‘But it might imply that the first cut might come later than it’s currently anticipated.’

He echoed other members of Governing Council by saying that ‘markets are getting ahead of themselves, it’s pretty clear.’

‘I think there are expectations of our policy rate movements in current markets that we will not vindicate’, he said. ‘Once it becomes clear to markets that we will not vindicate, I do expect some correction back to the interest rate path that was underlying our optimism of a gradual return to 2% inflation in 2025.’