ECB’s Knot: Risks Surrounding Inflation Increasingly More Balanced

18 April 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Thursday said that the risks around the ECB's inflation projections were more symmetrical, which improved confidence in the disinflationary process.

In an interview with Bloomberg Television on the margins of the spring meetings of the International Monetary Fund and World Bank, Knot, who heads De Nederlandsche Bank, said, ‘The projections that we have are pretty clear that we are moving toward reaching our target, 2% inflation, over the medium term, in the remainder of this year and the course of 2025, but there are risks surrounding such projections. But increasingly, these risks are becoming more balanced.’

The disinflation process would become bumpier, but the Governing Council was confident about its direction, he said.

The market pricing of a 25bp cut in June followed by two other cuts was not something that made Knot uncomfortable, he said, though he also noted that the ECB was not committing to a particular rate path.

‘Of course, we have a picture of where we think the underlying movement is within the data’, he said. ‘But we will have new data points every month on inflation, every quarter on the labour market, and that will continue to inform our decisions beyond June.’

Asked about the impact of a potential increase in oil prices, he said that an oil shock would tend to lift inflation, but that it would be necessary to see if it was significant enough to trigger second-round effects.

‘Now, if we have an oil shock, it will be against the backdrop of general disinflation and all the other factors. So, the likelihood of significant second-round effects, I would argue, is smaller, but is clearly something to monitor’, he said. ‘It’s clearly something to keep in mind.’

The ECB had to set its own monetary policy, which was ‘testimony of the fact that we’re increasingly confident with the disinflation process that we have been seeing and that we expect to continue’, he said.

‘Obviously, monetary policy always takes place in a global context, but at the same time, we’re not the 13th federal district [of the United States]. We have our own monetary policy, we have our own set of outlooks, economic outlook, inflation outlook’, he said.