ECB’s Wunsch Says Rates Should Fall, But Warns on Inflation

Posted by Admin September 15, 2024 Bussiness

(Bloomberg) — The European Central Bank should be able to continue to ease policy, but must be mindful of consumer-price growth, according to Governing Council member Pierre Wunsch.

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“In our base scenario, if our forecast becomes reality, we should be able to reduce interest rates further,” he told Belgium’s VRT in a television interview on Sunday. “But I see a small risk that it’ll happen more slowly if services inflation remains elevated.”

Wunsch spoke three days after the ECB cut rates for a second time, with President Christine Lagarde hinting that another such move might be more likely in December — rather than at the next meeting in October.

Consumer-price growth “seems to be more or less under control,” the Belgian central bank chief said. “But services inflation — inflation without goods and energy — remains very high, about 4%. So it’s not that easy and if the recovery is coming, and we hope that it is, it’s well possible that inflation will remain above 2% for a longer period.”

The ECB last week stuck with its inflation forecasts and predicts consumer-price growth will hit the 2% target by the end of 2025.

“The recovery in Europe is getting slower,” Wunsch said “We thought that we’d see a recovery in 2023, but that didn’t arrive. In 2024, it’s going relatively slow. It’s still partly cyclical, but increasingly structural.”

Wunsch, who heads Belgium’s central bank, also said:

As Belgium, “we no longer have any safety cushions to deal with future shocks or crises. We were able to do so with Covid and the energy crisis. But with a deficit that, with unchanged policy, tends toward 6%, we will no longer have any power to repeat this in the future.”
Asked about the Sept. 20 deadline to submit mid-term budget plans to the European Union, Wunsch said:
- “It’s not about a week or a month. I think the quality of what’s on the table is more important than a delay of 15 days. Europe said clearly if there’s no government we can understand that the plan comes a bit later. Quality matters more. But we cannot wait 500 days. It has to happen toward the end of this year.”