Exclusive: ECB’s Wunsch: Risks Not Big Either Way, Whether We Wait for More Data or Not

12 February 2024

By David Barwick – BRUSSELS (Econostream) – European Central Bank Governing Council member Pierre Wunsch on Thursday said that while an argument could be made for deferring monetary policy easing until more data became available, the risks of deciding not to continue to wait were also not great.

Speaking briefly to Econostream (transcript here) following a public appearance, Wunsch, who was recently appointed to a second term at the head of the National Bank of Belgium, said that the ECB would eventually have to decide whether to cut or not with whatever information then available, but that it made little difference whether the ECB cut earlier and more slowly or later and faster.

‘[T]here is some value to waiting, but it’s not like by waiting so many days or weeks or months that we will know everything precisely’, he said. ‘So, at some point it becomes a tradeoff between the value of continuing to wait and the fact that the economy is not very strong and that inflation momentum is going down.’

‘And I don’t think the risks are that big either way’, he added.

Waiting entailed low costs because market pricing was ‘the equivalent of a number of rate cuts already’, he reasoned. Moreover, the economy was ‘weak’, but there was no reason to exaggerate conditions, he said.

‘But conversely, I think that if at some point we take the decision to cut rates, it’s reasonable, as the risks on the inflation front are by now quite limited’, he said.

‘My point is that we’re not going to wait - just to exaggerate - a whole year to have absolute certainty about wages’, he said. ‘At some point we are going to have to decide on the basis of the information we have whether we cut or we don’t cut.’

Were the Governing Council to make a decision that subsequently made it necessary to ‘change tack’, then it would simply do so, he assured.

The debate that would come about when to cut and at what speed was ‘a reasonable discussion to have and you can decide to start earlier, but then do it at a tempo that’s not that high’, he said. ‘Or you can wait a bit more and then go faster. And I don’t think it makes a huge difference.’