ECB's Wunsch Cautions Against "Sleepwalking" into Excessive Rate Cuts

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Pierre Wunsch, a policymaker at the European Central Bank (ECB), warned that the euro zone risks "sleepwalking" into excessive interest rate cuts and must be ready to stop soon. The Belgian central bank governor expressed some comfort with the market's expectation of rates reaching 2% by the end of the year, with a margin of 50 basis points.

On January 30, the ECB reduced its deposit rate by 25 basis points to 2.75%, with further cuts expected in March as concerns over sluggish economic growth took precedence over persistent inflation. Wunsch emphasized that while he isn't advocating for a pause in April, the ECB must be cautious and not blindly pursue rate cuts. He stated, "If the data justify a new cut, we'll cut. If they don't, we might have to pause."

He also noted growing uncertainty about the appropriate level for interest rates, expressing doubts about whether current rates are restrictive enough for both growth and inflation. The ECB has already reduced rates five times since last June, and there is ongoing debate among policymakers about how much further rates should be lowered, given the continued inflationary pressures and nearly stagnant economic growth.

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