The ECB cut rates in early June and said that more easing is coming but offered no clues on the timeline of subsequent moves, leaving markets to guess and policymakers to debate the merits of action.
“I don’t see a case for another rate cut in July,” Knot told Handelsblatt in an interview published on Monday. “The next meeting that will truly be open again will be in September.”
Knot said he remained “comfortable” with the ECB’s progress in cutting inflation, which sees the 2% target reached in late 2025, but the ECB should not tolerate any further delay since it will have been above its goal for four and a half years by then.
A delay in getting back to 2% would then mean even slower cuts in the 3.75% deposit rate, which is still high enough to restrict economic growth.
For now though, all seems to be on track, Knot said.
“I am perfectly fine with our policy stance and with current market expectations of future rate cuts,” said Knot, who was considered a conservative in the past but is now seen more as a centrist.
Markets see between one and two rate cuts this year and just over four moves over the next 18 months, suggesting that the deposit rate would stay above 3% into the second half of next year.
“As long as we are above 3%, we are still restrictive,” Knot said. “And that will be the case for the foreseeable future, beyond which I cannot make meaningful statements.”
Knot argued that the main risks to the inflation path are the combination of quick wage growth with mediocre productivity improvement, and the uncertainty over firms’ ability to absorb higher labour costs with lower profit margins.
Source: Economy - investing.com
