ECB’s Wunsch: ‘We Must Not Sleepwalk to 2% Without Thinking About It’

24 February 2025

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is at risk of blindly going too far in easing its monetary policy, according to Governing Council member Pierre Wunsch.

In an interview with the FT, Wunsch, who heads the Belgian National Bank, said that the ECB could wind up ‘sleepwalking’ into too many rate cuts.

‘I’m not pleading for a pause in April but we must not sleepwalk to 2% without thinking about it’, he was quoted as saying. ‘Let’s keep it open: If the data justify a new cut, we’ll cut. If they don’t, we might have to pause.’

Nonetheless, Wunsch signalled that he was ‘relatively relaxed about the inflation outlook’, according to the paper. The risks were ‘relatively limited’ in both directions, he said, so that ‘[i]nflation in Europe might be the boring part of 2025, and 2025 is not going to be boring.’

According to Wunsch, ECB President Christine Lagarde’s assurance as to the downward ‘direction of travel’ at the last press conference meant only ‘that we felt comfortable going from 3% to 2.75% and that we might see one or two rate cuts to go’.

‘At some point — and it might be at one of the next meetings depending on whether we have a surprise or not — we may have to consider whether we are not only moving in the right direction, but also at the right pace’, Wunsch said.

Wunsch declined to confirm that rates were still restrictive, calling himself ‘not even sure’ about this. Policymakers’ job now was ‘fine-tuning’ monetary policy ‘around a soft landing’, potentially entailing ‘a little bit of trial and error’, he said.

Still, Wunsch said he was ‘relatively comfortable’ with the expectation of markets that interest rates would get to 2% by year’s end, ‘give or take 50bp’. He did not exclude going below 2% if data warranted it, the FT said.