ECB’s Wunsch: October Decision Not Pre-Determined Despite Colleagues’ Comments

9 October 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Pierre Wunsch said on Wednesday that despite the comments of his colleagues about a potential October cut, the decision was not yet taken.

In an interview with Belgian business daily L’Echo, Wunsch, who heads the National Bank of Belgium, said, ‘It is not because some of my colleagues have spoken in the media that the die is cast. We will examine this calmly next week.’

As to markets' reaction to comments of some of his colleagues, Wunsch said that the ECB ‘should not play with this.’

While acknowledging that economic activity was slower than projected and inflation was on track to 2%, he said that the ECB had to remember that CPI gave ‘upward surprises’ before September’s reading.

‘Services inflation remains very dynamic. We are at 4% one year later. We continue to have domestic inflation that is significantly above our target’, he said.

Wunsch stated that he supported ‘measured and prudent rate cuts’ considering recent developments in economic activity and inflation, but questioned the case for an October rate reduction.

‘I was completely in agreement with starting to cut rates in June. But is there a determining factor that makes us have to open the discussion in October? I would really like to see the analysis that the central bank staff makes of it’, he said.

Asked if the ECB was acting too quickly, Wunsch cited the spike in oil prices, the resilient US economy and China’s economic stimuli as elements to factor in.

‘The risk is that we accelerate the rate cut at a time when the trend in energy prices is reversing. Because in fact, today, what is causing inflation to fall is, essentially, the negative contribution of energy (-6%)’, he said.

The ECB would face a risk if it were to communicate an accelerated pace in rate reductions while oil prices stayed on the rise, he said.

‘We have a weaker economy, but, for me, it is not clear that this changes our judgment implying a gradual decrease in rates, in an environment going in the right direction’, he observed.

A reversal in monetary policy after cutting rates too fast would be harder to communicate for the ECB than being ‘a little too slow and have to accelerate at some point’, he said.