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theburlarcade| ECB Winsch: Decision-making will become more difficult after two interest rate cuts
Pierre Wunsch, a member of the governing council of the European Central Bank (European Central Bank), said there were clear reasons for the ECB to cut interest rates twice, but it was difficult to predict what would happen next because of the uncertainty of domestic inflationary pressures.
The Belgian central bank governor said in an interview during the spring meetings of the International Monetary Fund (International Monetary Fund,IMF) and the World Bank (World Bank) in Washington that the slowdown in inflation means that current real borrowing costs are becoming more stringent.
"this supports the removal of at least part of this additional restriction," Wunsch said. "in the absence of negative accidents, the first two interest rate cuts are quite easy, and then it gets a little complicated."
ECB officials seem to agree that unless a major accident undermines the inflation outlook, it is necessary to cut interest rates for the first time in June. Few predict how much interest rate rises will be this year, as officials face uncertainties, including delayed easing by the Federal Reserve (Federal Reserve), tensions in the Middle East and stickiness in domestic service prices.
Wensch said the ECB's July meeting will provide important insights into the way forward.
Theburlarcade"if we see some inertia in wage development and service inflation, we will not signal at every meeting that we will cut interest rates," he said. " The July decision is likely to send an important signal about the pace of interest rate cuts. That's where I don't want to give any hints. Because to be honest, I don't know. "
The conflict between Israel and Iran has become the latest source of anxiety, especially given that the conflict between Russia and Ukraine and the ensuing surge in natural gas prices have been the main cause of inflation in the eurozone over the past two years. For Mr Wensch, the sharp rise in oil prices will have a direct impact on ECB policy.
"if core inflation is 3 per cent, service inflation is 4 per cent and wages rise 4 per cent, you will not see an oil shock," he said. I'm not saying we're going hiking again. But it will certainly have an impact on the timing of interest rate cuts. "
However, he said, "it all depends on the type of oil price shock."
Another turning point is disappointing inflation data in the US, which raises the question of whether the Fed can cut interest rates. Previously, it appeared to start loosening policy in June, the same month as the ECB.
Views within the ECB are divided over how much impact this will have on eurozone monetary policy. Mr Wensch concedes that leaving the US interest rate trajectory would leave a mark.
"the net impact is higher inflation in Europe," he said. " I think the upward impact of the exchange rate, a stronger US economy and a common component of global inflation will outweigh the downward impact of rising long-term bond yields. In theory, it will not be to the extent that we cannot cut interest rates, but it is certain in the direction. "
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