Economic news

ECB should wait to cut charges, then take a bet – Wunsch

2024.02.08 10:09


© Reuters. FILE PHOTO: A view of the European Central Bank headquarters in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker/File Photo

FRANKFURT (Reuters) – The European Central Bank should wait for extra wage knowledge earlier than slicing rates of interest however it should then have to take a gamble on whether or not inflation is falling for good, ECB policymaker Pierre Wunsch mentioned on Thursday.

The Belgian central financial institution governor additionally expressed scepticism concerning the ECB’s local weather technique, championed by President Christine Lagarde, together with its local weather-focussed stress check of European banks.

After elevating charges to document highs, the ECB is broadly anticipated to begin slicing them later this yr, with the talk now focussed on whether or not it might begin already in April or later.

Wunsch sided with fellow hawks — or policymakers who favour increased charges — in saying that the ECB should wait to get extra knowledge about wages, which are actually regaining a number of the floor misplaced to inflation up to now two years and are a driver of value development.

But, utilizing uncommon language for a central banker, he mentioned the ECB should then take a bet even when it doesn’t have all the info it wants.

“Let’s be honest, we won’t get full comfort within a reasonable period,” Wunsch mentioned at an occasion organised by assume tank Bruegel. “So I think there is some value to waiting to get some more detail on wages, but at some point we are going to have to bet on where inflation is going.”

Official knowledge about labour prices for the primary quarter of the yr will solely develop into obtainable in May however the ECB is monitoring ongoing negotiations and extra well timed measures such because the Indeed Wage tracker.

Wunsch mentioned wage development was displaying a deceleration, however “not a very strong one”.

Investors are placing a 50% likelihood on the ECB decreasing the speed it pays on financial institution deposits by 25 foundation factors in April, with slightly below 5 cuts priced in by the tip of yr to take it to 2.5%-2.75%.

‘NO ROOM’ FOR CLIMATE SUPPORT

Wunsch appeared to criticise the ECB’s public assist for the battle in opposition to local weather change, which has seen it incorporate some environmental concerns in they manner it picks company bonds below a coverage scheme and in its supervision of banks.

He mentioned the ECB should go away elected politicians to set the course, for instance in setting carbon costs, and chorus from providing assist that may in truth quantity to making coverage.

“It’s for politicians to decide what’s the right trade off and…there is no room for support,” he mentioned.

He praised Federal Reserve Chair Jerome Powell, who mentioned the Fed was not a local weather policymaker.

“Honestly, the ECB has been less clear on that front,” Wunsch mentioned. “I don’t think the rules of engagement are very clear conceptually.”

In addition, Wunsch mentioned he was not satisfied by the situations used within the ECB’s local weather-associated stress exams of European banks, together with a sudden, coverage-pushed surge in power costs in a situation wherein the local weather transition is delayed.

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