ECB’s Wunsch Says Maybe Too Early to Get Hopes Up on Rates

Zoe Schneeweiss, Bloomberg News

Pierre Wunsch, governor of the National Bank of Belgium, at ECB And Its Watchers conference in Frankfurt, Germany, on Wednesday, March 22, 2023. The European Central Bank will take a "robust" approach that allows it to respond to inflation risks as needed but also aid financial markets if threats emerge, according to President Christine Lagarde. Photographer: Alex Kraus/Bloomberg , Bloomberg

(Bloomberg) -- The European Central Bank may not lower borrowing costs as quickly as some anticipate, according to Governing Council member Pierre Wunsch.

“Financial markets are pricing in a swift return to price stability: inflation expectations remain anchored and long-term interest rates are down again as investors expect central banks to start easing soon after an immaculate disinflation,” he wrote in an article in Eurofi magazine. “That being said, it may be too early to get our hopes up.”

Markets are currently betting on an ECB rate cut as soon as April, though most policymakers have been signaling that June looks more likely as additional data on labor costs will be available then.

“Wage pressures continue to be high, labor markets remain tight and bond markets can change course quickly, as the late summer selloff illustrated,” Wunsch said. “I believe one should not discard a scenario in which monetary policy stays tight for longer than currently expected, one that would also be associated with more pronounced risks to financial stability.”