ECB’s Knot backs market forecast for rate cuts

European Central Bank (ECB) policymaker Klaas Knot expressed support for market expectations of interest rate cuts at the ECB’s upcoming meetings on January 30 and March 6 but cautioned about long-term uncertainties, including potential impacts from US trade policies under President Donald Trump.

Speaking on Bloomberg TV on Wednesday, the traditionally hawkish Dutch governor stated, “I’m pretty comfortable with the market expectations for the upcoming two meetings,” while emphasising the need for a cautious approach beyond that.

Knot highlighted “encouraging” economic data showing inflation close to the ECB’s 2 per cent target and signs of a potential economic recovery. However, he warned of medium- to long-term risks stemming from global trade dynamics and inflationary pressures.

Money markets currently anticipate four more rate cuts this year, bringing the deposit rate to 2 per cent, near the lower bound of the neutral range deemed by ECB economists. Knot expressed reservations about moving into stimulative territory unless recovery prospects significantly weaken, stating, “The data will tell us where to go.”

Attribution: Reuters

Subediting: M. S. Salama