ECB Governing Council member Pierre Wunsch today expressed skepticism regarding market expectations of an early easing of monetary policy. His comments highlight a crucial divergence between market forecasts and ECB’s potential policy path in the face of ongoing inflationary pressures.
Wunsch described the market’s anticipation of a reduction in ECB’s deposit rate from the current 4% by April as “optimistic.” He pointed out the necessity for ECB to either continue with the current rate or possibly increase it, contrary to market expectations.
He raised concerns about the implications of market bet on rate cuts. “Is it a problem if everybody believes we’re going to cut?” he questioned. This could lead to “less restrictive monetary policy” which may then be insufficient, and eventually, “it increases the risk that you have to correct in the other direction.”
Wunsch emphasized the ECB’s readiness to adapt its strategy based on inflation trends. “If we arrive at the conclusion that inflation is not going down fast enough, we’ll communicate it through our projection and through our communication,” he stated.
