“Bets on a rate cut could lead to more increases” — idealista/news

2023-11-20 15:49:00

The governor of the National Bank of Belgium and member of the Governing Council of the European Central Bank (ECB), Pierre Desirehas warned that the institution may have to raise interest rates again if market bets on monetary easing undermine the institution’s policy stance.

In an interview in Frankfurt with the agency Bloombergthe Belgian banker maintains that markets are taking an “optimistic” view by ruling out the possibility of further increases and expecting the first reduction in the ECB’s deposit rate from its current level of 4% even as soon as next April .

“Is it a problem if everyone thinks we are going to cut back? (…) So we have a less restrictive monetary policy. And I’m not sure that then it is restrictive enough,” questioned Wunch, for whom such a circumstance “increases the risk that it will have to be corrected in the other direction.”

“I think that the markets today are relatively optimistic and exclude the possibility that we have to do more or that we have to stay at 4% for longer,” added the Belgian ‘hawk’ of the ECB Governing Council.

The ECB’s latest economic forecasts foresee a fall in the inflation rate in line with the 2% target for the second half of 2025, although the institution expects prices to rebound due to energy volatility and that the elimination of Government aid to cope with the higher cost of living will also slow progress.

“If we conclude that inflation is not coming down fast enough, we will communicate that through our forecasting and our communication,” according to Wunsch. “If the markets do not infer from this that they will remain high for longer, then we will have to use our rate instruments and raise them to get where we want to go,” she warned.

In any case, thanks to the “recent marginal positive surprises on inflation”, Belgian central banker does not foresee any change in rates in the next two monetary policy meetings.

Market bets on potential cuts in borrowing costs have risen following recent data showing a sharp slowdown in inflation and the region still struggling to gain momentum, despite concerns from monetary policy makers over increases. wages and the fact that the conflict in the Middle East could cause energy prices to rise again.