FRANKFURT (Reuters) – The European Central Bank’s first two interest rate cuts are a “no brainer” but slower than expected policy easing in the U.S. could delay some of the ECB’s moves, Belgian central bank chief Pierre Wunsch told German newspaper Handelsblatt.
The ECB has all but promised a rate cut on June 6 as inflation is now within striking distance of its 2% target but has kept its options open for subsequent meetings since the outlook could change quickly.
“Except for a sudden shock in the coming months, the first half of a percentage point in interest rate cuts is close to a no brainer. That’s the easy part,” Handelsblatt quoted Wunsch as saying on Tuesday.
“Nevertheless, we should proceed gradually and not too quickly. We should refrain from committing to a second rate cut already in July.”
Asked why he was not advocating a July move, Wunsch said that a second consecutive step could signal that the ECB was initiating a series of rate cuts, heightening market expectations at a time when policymakers should remain cautious since it was uncertain where rates will end up.
Wunsch also said that a delay in rate cuts by the U.S. Federal Reserve could slow the pace of ECB rate cuts but this was unlikely to derail euro zone disinflation as well.
The Fed is now seen on hold until November, with the first cut expected by markets just days after the U.S. election, as U.S. inflation is proving more sticky than thought.
“Higher U.S. interest rates could lead to a strong dollar and thus to imported inflation, i.e. higher prices here,” Wunsch said.
“That might lead to a slower pace at which we cut rates. However, it is unlikely that it will take us off the inflation path towards 2%.”
(Reporting by Balazs Koranyi; Editing by Susan Fenton)
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