ECB’s Wunsch: Should Be Ready to Cut Rates Below 2%, Might Need to be ‘Mildly Supportive’

18 May 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Pierre Wunsch said on Sunday that the economy could require that the ECB enter accommodative territory.

In an interview with the FT, Wunsch, who heads the National Bank of Belgium, said that the ECB should be ready to cut rates to ‘slightly below 2%’ as trade wars globally had the potential of bringing inflation down further.

‘If you look at the economy – the shocks we are confronted with and the uncertainty on growth – it might warrant to be mildly supportive’, he said.

He said he was ‘not shocked’ by market forecasts.

‘The way I read them is that, somewhere around the end of 2025, we could be mildly supportive’, he said.

US policies clearly presented ‘downside risks to inflation’ in the Eurozone and jeopardised economic growth, he said.

The appreciation of the euro, plunging energy prices as well as the potential diversion of unexpensive Chinese goods into Europe could also impact negatively on inflation, according to Wunsch.

Higher defence and infrastructure spending in Germany would not be able to compensate the disinflationary effect from tariffs in the short term, he said.

‘Fiscal policy takes time before it becomes supportive’, he said, but added that the ‘negative’ shock to the economy in the short term could be followed by a ‘positive shock in 2026 and 2027.’

There was no reason for cutting by 50bp in the short term, according to Wunsch.

He said he was currently ‘not pleading’ to cut rates below 2% but considered himself to be ‘open to contemplate this possibility’.