ECB’s Knot: 'More or Less Fine With Market Expectations of Further Cuts'

19 September 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Thursday said that provided that the disinflation process continued, market expectations of further ECB interest rate cuts were reasonable.

Speaking at the Koç University in Istanbul, Knot, who heads De Nederlandsche Bank said, ‘As long as that’s the case [that disinflation proceeds as projected], I’m more or less fine with market expectations of further cuts.’

‘I’m not going to tell you how much and when because we’re data-dependent and we should be data-dependent’, he added.

The balance of risks was currently ‘more or less neutral’, he said, and the ECB was following a path which allowed for optionality.

‘If services inflation proves to be more stubborn than we think, of course there will be less room for rate cuts’, he said. ‘If, on the other hand, the economy continues to be weak then there’s room for more cuts.’

In a previous speech, a text of which was posted to the website of De Nederlandsche Bank, Knot said, '[L]ong-term inflation expectations for the euro area, measuring the ECB’s credibility, have remained broadly in line with our target.'

'This has enabled us to bring back inflation levels to close to target without a significant cost to the real economy', he said.

'Monetary policy credibility does not come overnight', he said. 'It has to be earned'

According to Knot, structural changes in the economy 'pose challenges to central banks in their pursuit of price stability', and meeting these challenged hinged on central bank independence.