ECB’s Wunsch Sees Possibility of Continuing to Cut Rates ‘In a Gradual Manner’

28 November 2024

By David Barwick – FRANKFURT (Econostream) – The European Central Bank may be able to cut interest rates further, but only gradually, according to Governing Council member Pierre Wunsch on Wednesday.

In an interview with Nikkei, Wunsch, who heads the Belgian National Bank, said that if the ECB’s target were reached sooner than previously thought, then it would be possible to continue ‘reducing rates in a gradual manner’.

‘It may be the case that we now start [2025] from a lower number’ for inflation than the 2.5% envisioned in the September projections, he said, according to Nikkei. This would mean that ‘it is possible and even maybe likely that we will have to discuss removing restriction’, he said.

Ultimately, interest rates would be cut to ‘somewhere close to 2%’, he said.

Still, Wunsch left little doubt that he was opposed to large cuts: ‘If you would suddenly accelerate the rate cuts while domestic inflation is still above 2.5%, I'm not sure we would give a very good signal’, he was quoted as saying. ‘It might be perceived that we have a much more negative view on the economy than we would have in the forecast.’

As for the possibility of new trade-restricting measures in the US when President-elect Donald Trump takes office, ‘we know it's not going to be good for growth’, he said. There was ‘a lot of uncertainty’ about how Trump’s trade policies would affect inflation, he said.

The euro could however depreciate, in which case, ‘it is possible that the impact of the tariffs would be slightly inflationary’, he said.