ECB should ‘make a bet’ on rates before long, says Wunsch

By Thomson Reuters Mar 12, 2024 | 6:02 PM

BRUSSELS (Reuters) – The European Central Bank will have to gamble soon with an interest rate cut even though wage inflation and price rises for services are uncomfortably high, Governing Council member Pierre Wunsch said.

The ECB held rates unchanged at a record high last week, but its chief Christine Lagarde said discussions over easing policy have begun, hinting strongly that this easing would mostly likely happen in June, when wage data will have been published.

“We are going to have to make a bet at some point,” Wunsch told a news conference on the Belgian national bank’s annual report, in comments embargoed until Wednesday.

Wunsch said he had been pleading for the ECB to wait, but now felt it should act “before so long”, without specifying a month.

He said the ECB was getting to a point where it could react to inflation heading in the right direction.

“But it will remain a cautious move on the basis of what I know today because of the problem that has been commented again and again and again that service inflation and wage developments are still running at levels that are ultimately not compatible with our objective,” he said.

Euro zone inflation fell in February to 2.6%, but underlying price growth remained stubbornly high, with prices for food, alcohol and tobacco up 4.0% year-on-year and for services 3.9% higher.

“But of course in our projections we have these going down so we are not going to wait until we see wage development at 3% before we cut rates. I guess we’ll do it before and that’s why I say it’s important we need to take a bet,” Wunsch said.

Wage costs rose 5.3% from a year earlier in the third quarter of 2023, the fourth consecutive quarter in which growth has exceeded 3%.

(Reporting by Philip Blenkinsop, Editing by William Maclean)