ECB’s Wunsch Would Need Convincing for More Than Two 2024 Cuts

(Bloomberg) -- European Central Bank Governing Council member Pierre Wunsch would need to be thoroughly convinced that inflation was headed back to the 2% target in order for him to back more than two reductions in interest rates this year.

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“The first two rate cuts are relatively easy as long as inflation hovers around 2.5% because we will still clearly be restrictive,” the Belgian central-bank governor told Bloomberg TV on Monday.

“If we’re still moving around 2.5% and contemplate other cuts, I think at some point it becomes more difficult,” he said in Sintra, Portugal, where he’s attending the ECB’s annual retreat. “So we would really need to have strong indications that we are moving below 2.5% to 2%.”

The ECB lowered borrowing costs last month for the first time since taking the deposit rate to a record high. With most officials steering clear of providing guidance, speculation has built among investors and economists about how quickly and by how much monetary policy will be loosened in light of lingering inflation risks.

Markets reckon there’ll be one or two more reductions this year — a scenario that “looks reasonable,” according to Wunsch. But he signaled that this month’s meeting may be too soon for a second cut.

“It’s always an option in theory,” he said. “As I’m pleading for caution, I’m probably pleading also that we would put more focus on the meetings where we have more information,” he said, referring to the quarterly gatherings where officials get updated economics projections.

Another step toward the inflation goal may come Tuesday, when economists expect Eurostat to report a slowdown in euro-zone consumer-price growth in June to 2.5% from 2.6%. That would match the level in Germany, the region’s biggest economy, which reported figures for last month earlier Monday.

Some remain worried, however. Austria’s Robert Holzmann — the sole dissenter against the ECB’s rate June cut — warned Saturday that inflation’s persistence is being underestimated.

Wunsch said the moderation in price growth is going in the right direction.

“Broadly speaking, looking back at the six or nine previous months, we are still on track, still in line with our forecast,” he said. “The most difficult part of it is behind us.”

Turning to the political upheaval in France and the recent widening of bond spreads, the Belgian official said he wasn’t that concerned at present, and that there are currently no grounds for the ECB to activate tools to soothe investors’ worries.

“If at some point we see in the markets developments that are purely unwarranted and disorderly, we have an instrument that we could use,” he said. “But at the same time, we’re not going to solve fiscal problems.”

--With assistance from Joao Lima.

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