European Central Bank policymaker Pierre Wunsch expressed concerns that the euro zone could be at risk of experiencing excessive interest rate cuts inadvertently and emphasized the importance of being vigilant, as reported by the Financial Times. Wunsch, the Belgian central bank governor, indicated his comfort level with market expectations of interest rates reaching 2% by year-end, "give or take 50 basis points," according to the FT.
Following a recent 25 basis points cut by the ECB to 2.75% on Jan. 30, policymakers signaled a potential further reduction in March as worries about lackluster economic growth outweigh concerns about ongoing inflation.
Wunsch cautioned against complacency, stating, "If the data justify a new cut, we'll cut. If they don't, we might have to pause," as reported by the Financial Times. He underlined the growing uncertainty regarding the appropriate level of interest rates, acknowledging he was unsure whether rates were still restrictive for growth and inflation.
The ECB has decreased interest rates five times since last June, prompting ongoing discussions among policymakers about how much further rates need to fall given the challenge of managing inflation that is slightly elevated while economic growth remains minimal.