ECB’s Knot: Comfortable With Less Restrictive Stance as Long as Inflation Converges to Target
27 August 2024
By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Tuesday avoided commenting on whether the ECB would cut interest rates in September but said that he would be comfortable with a less restrictive monetary policy stance if the disinflation process remained on track.
During a panel at the Annual Congress of the European Economic Association in Rotterdam, The Netherlands, Knot, who heads De Nederlandsche Bank, was asked about the likelihood of an interest rate cut in September.
‘[A]s long as our disinflation path still converges towards a return to 2% inflation at or before the end of 2025, then of course, I'm comfortable with gradually taking our foot off the brake because then we need less restriction', he said.
The appropriate level of restriction would be assessed at each Governing Council meeting, he said.
‘I will have to wait until I have the full data and information set going into that meeting to decide my position on whether September is appropriate, and I will have to do so again on October, December and whenever we meet in Frankfurt’, he said.
During the recent energy crisis there had been an undesirable imbalance between monetary and fiscal policy in the euro area, with a negative effect on monetary policy, he said in his speech.
‘Interest rate hikes put upward pressure on debt servicing costs, which should have been compensated by higher primary fiscal balances’, he said. ‘Here too we see that an inappropriate fiscal stance can hamper the efficacy of monetary policy.’