TRANSCRIPT: Brief Chat with ECB Governing Council member Wunsch on 08 February 2024

12 February 2024

By David Barwick – BRUSSELS (Econostream) - Following is the transcript of a brief chat that took place on 8 February 2024 between Econostream and Pierre Wunsch, Governor of the National Bank of Belgium and member of the Governing Council of the European Central Bank, following the latter’s presentation at a public event we reported on at the time.

Q: You said in your remarks that at some point we would have to ‘take a bet’ in deciding whether or not to cut rates. At what point do we have to decide to take the bet, and how risky can the bet be?

A: My point is essentially that there 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. 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. Because already, in terms of financial conditions, market rates have gone down. So, even though we have not done anything, there is this perception that our rates are going to go all the way down, and that has been anticipated and credit conditions are, in terms of interest rates, already loosening. Okay, the economy is weak, but it’s not like unemployment is skyrocketing or anything like that. So, I don’t think the risks are huge. My point is that we’re not going to wait - just to exaggerate - a whole year to have absolute certainty about wages. 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. But the question is when.

Q: And when you say that the risks aren’t huge, this includes the scenario of cutting and then deciding that waiting a little more would have been better?

A: The cost of waiting is not big because to some extent, with market movements are the equivalent of a number of rate cuts already. 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. And look, if we then have to change tack at some point, we will. Okay, that might not be great for our reputation…

Q: Well, some of your colleagues, including Isabel Schnabel a couple of days ago, have made clear that there could be pauses between the cuts. So, it wouldn’t need to be seen as a mistake if you cut and then waited some more.

A: We know that most probably the discussion is going to be about when we cut rates and at what tempo. And it’s a reasonable discussion to have and you can decide to start earlier, but then do it at a tempo that’s not that high. Or you can wait a bit more and then go faster. And I don’t think it makes a huge difference.