By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Pierre Wunsch said on Friday that an interest rate hike in the April meeting remains possible, but that more evidence is needed before any decision is taken.
In an interview with Bloomberg TV, Wunsch, who heads the National Bank of Belgium, said that the ECB should avoid overreacting and act only if warranted by incoming data.
“I think so far we were able to communicate the fact that we would react if need be, but that we were not going to rush to do anything that would be looking like overreaction,” he said.
Wunsch noted that the current environment differed from the 2022 inflation shock, pointing out that at that time supply bottlenecks, tight labor markets and strong fiscal support linked to the pandemic amplified price pressures.
If the conflict were largely resolved by April, the situation would remain close to the ECB’s baseline scenario—a “relatively benign” outlook that did not clearly justify policy action, he said.
“Of course, we were doing the projection on the basis of two hikes that were priced by the market,” he said. “But I would say, if you are still close to the baseline, that it's not clear we have to react.”
However, should the situation evolve toward a more adverse scenario—characterized by higher and more persistent inflation—the ECB would need to respond, he said. In such a case, policymakers would have to decide whether to stabilize real interest rates or tighten them further, he added.
“So, if you believe that core inflation is going to go up for a period over a year, you may want to react and the first hike might just be adjusting to this higher core inflation,” he said.
If the shock was larger and second-round effects were “significant,” the ECB would have to tighten, he said, which could be more than just “hiking as such if inflation is going up.”
He said his main concern would be if the conflict persisted beyond April or June. “If the conflict is not over by June, then we are most probably way above our baseline, and that would probably warrant some kind of reaction,” he added.
The ECB must consider the impact on growth and whether weaker economic conditions could dampen inflationary pressures, he said. “If the economy weakens fast, then the second-round effects might be limited, which might warrant less of a move,” he said.
Monitoring how firms and workers adjust prices and wages would be key, he said. Faster reactions could amplify inflation dynamics, while a weaker economy might lead to more muted responses and lessen the case for intervention, he said.
Wunsch said he was “patient today, but in April, if we’re still there, I might not be patient,” noting that he did not want to convey the message that the ECB was not ready to act.
He said he was “comfortable with what I see in the market,” but cautioned against making firm judgments about upcoming meetings, as “market signals or reaction will be different next week and the week after next.”
The ECB should not overreact and should only take action based on its perception of what second-round effects would look like, he said.
“But April is not out of the question,” he said. “If by April we have solid evidence that the shock will be lasting and will lead to a big hike in inflation that that is likely to have some degree of persistence, then we might have to do something, but we still have some time before the April meeting, and I don't want to take any bet in one or the other direction.”
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