More ECB rate cuts increasingly unlikely, Wunsch says

The chances of further interest rate cuts from the European Central Bank (ECB) are declining, given the economy’s resilience and inflation holding around the 2 per cent target, Belgian central bank governor Pierre Wunsch said on Friday (Oct 17).

The ECB cut rates by a combined two percentage points in the year to June but has been on hold ever since as policymakers contemplate if further easing may be needed due to the potential for consumer prices to rise too slowly.

“Given that the economy is proving resilient, the chance that further rate cuts will be needed is receding,” Wunsch told Reuters on the sidelines of the IMF’s annual meeting. “I’m quite comfortable where we are today, though I remain open.”

Still, risks are skewed towards interest rates going lower, since the impact of tariffs is yet to fully play out, the US dollar is weak and there is the risk of China dumping surplus goods, Wunsch added.

Inflation is set to dip to 1.7 per cent next year before rising back to target in subsequent years, fuelling concern among some policymakers, particularly around the bloc’s southern edge, that price growth could get stuck below target.

“I don’t see any major risks for inflation either on the upside or downside,” Wunsch said. “But I also don’t get nervous about numbers like 1.8 or 2.2 per cent,” he added.

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Wunsch also said that not all deviations from the target required the same policy response and the ECB needed to study the underlying fundamentals in determining the intensity of its policy action.

“If we are growing at potential, the labour market is healthy, but inflation is still below target, I would support a mildly supportive stance but definitely not aggressive accommodation,” he said.

Wunsch also said that he was comfortable with market pricing for interest rates, which sees close to no chance of a rate cut this year and see a one in two probability of a move by next June. REUTERS