ECB’s Wunsch: 'I Don’t Think the Risk of Undershooting Has Increased Lately'

16 December 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Pierre Wunsch said on Monday that market rate cut expectations were in line with the ECB’s assessment.

In an interview with Bloomberg, Wunsch, who heads the Belgian National Bank, said that ‘we’re broadly comfortable’ with market bets of four or five more rate cuts of 25bp per cut.

However, he warned that these expectations would keep changing as the ECB approached the neutral level.

‘There is a relatively broad consensus that we need to remove restriction and probably go to something that is close to neutral’, he said.

Finding where the neutral level is would be a matter of ‘trial and error’ and there could be shocks that lead this level to be above or below 2%, according to Wunsch.

‘I don’t think the risk of undershooting the inflation target has increased lately because services inflation remains quite high’, he said.

Despite slower economic growth, inflation could not subside close to 0% with wage growth at 5.4% as in Q3, he indicated.

Inflation risks were ‘relatively balanced’, he said.

If the euro registered a strong depreciation, growth might not be strongly affected, but the impact could be inflationary, he said.