ECB’s Knot: ‘Neither Accommodative nor Restrictive’ Rate Level Is ‘Place to Be’

23 April 2025

By Marta Vilar – WASHINGTON (Econostream) – European Central Bank Governing Council member Klaas Knot on Wednesday expressed support for leaving interest rates at a neutral level.

In a speech at the Peterson Institute in Washington, Knot, who heads De Nederlandsche Bank, said that recent developments had ‘increased near-term downside risks to inflation, and so I was on board with the rate cut’ decided by the ECB on April 17.

However, the inflation outlook appeared more symmetric in the medium-term given high uncertainty, he said.

‘For me, this suggests that a policy rate that is neither accommodative nor restrictive broadly remains the place to be’, he said.

The blow of US tariffs to euro area growth would amount to 0.3% of GDP if levies were to be increased by 25%, he said.

‘Tit-for-tat retaliation would further increase the drag on both the EU and the US’, he said. ‘The brunt of the impact on growth would be around the second year after the tariff hike.’

The strengthening of the euro suggested that tariffs would not have the short-term inflationary impact initially expected, according to Knot.

‘For the medium term, however, there still is the risk that disruptions in global supply chains will put upward pressure on prices’, he said.

Potentially higher defence spending in Europe and Germany’s reform of the debt brake would impact positively on growth in the medium term, he said.

Regarding a potential active role of the ECB in strengthening the euro’s international role, Knot said the institution had always been ‘agnostic’.

‘Nevertheless, I think that my agnostic attitude recently seems to have shifted somewhat towards a state that perhaps could best be described as a cautious believer’, he said. ‘The main reason for this gradual shift is the need for more European strategic autonomy in an increasingly hostile world.’

ECB’s Knot: Impact of US Tariffs Likely More Inflationary as Time Passes