European Central Bank Governing Council Member Wunsch: If inflation slows down beyond expectations, interest rates will be gradually lowered, and the terminal rate may approach 2%
European Central Bank Governing Council member Pierre Wunsch stated that if inflation slows more than expected, the central bank may gradually cut interest rates, with the terminal rate approaching 2%. He warned that if there is a sudden acceleration in rate cuts while domestic inflation remains above 2.5%, it could send a negative signal. The market expects the fourth rate cut to occur on December 12, although some officials prefer a gradual approach. The Governor of the Bank of Greece hopes to lower rates to 2%, while Isabel Schnabel pointed out that borrowing costs could fall to neutral levels. Wunsch also mentioned that Trump's return to the White House could lead to a weaker euro
According to the Zhitong Finance APP, Pierre Wunsch, a member of the European Central Bank's Governing Council, stated in an interview that as inflation eases, the European Central Bank may continue to cut interest rates, potentially bringing rates down to "close to 2%."
He mentioned that if the inflation rate slows to the target level earlier than expected, officials would have reason to "gradually lower rates." He pointed out, "We may have to discuss lifting restrictions." However, he warned against taking more aggressive measures.
"If you suddenly accelerate rate cuts while domestic inflation is still above 2.5%, I'm not sure we would send a very good signal," he said, "People might think we have a much more negative view of the economy."
The European Central Bank will hold a meeting on December 12, and the market expects the central bank to implement its fourth rate cut of the year. Despite rumors that the central bank would cut rates by 50 basis points after economic data showed weakness, several officials indicated they prefer a "gradual" approach.
Yannis Stournaras, the Governor of the Bank of Greece, hopes for rate cuts at every meeting until rates drop from the current 3.25% to 2%. Executive Board member Isabel Schnabel noted in an interview this week that borrowing costs could fall to neutral levels, but she acknowledged it is difficult to pinpoint exactly where that level is.
Regarding Trump's return to the White House, Wunsch stated that U.S. trade tariffs could lead to a weaker euro, "If that's the case, the impact of tariffs could slightly trigger inflation."