ECB may cut rates below 2% amid economic risks

The ECB should be ready to reduce the cost of borrowing to just below 2% per annum in order to offset the risks caused by global trade conflicts, said Pierre Wunsch, head of the Central Bank of Belgium. According to him, the current economic uncertainty and the resulting shocks require additional support. As one of the steps, Wunsch mentioned a reduction in the deposit rate, which has already been reduced by the ECB from 4% to 2.25% since June last year.

Wunsch's statements indicate a revision of his previous position. In February, he argued that the transition to the 2% rate should not be automatic. However, according to him, the introduction of US duties on European imports created risks for inflation and a slowdown in growth. He also noted the strengthening of the euro against the dollar, which makes imports to the eurozone cheaper, which may slow down inflation. Falling energy prices and cheaper Chinese goods have a similar effect.

At the same time, Wunsch stressed that he does not support an accelerated rate cut of 50 basis points and considers steps of 25 points more appropriate. He is ready to consider the option of a rate below 2% only if necessary, while maintaining a balance between flexibility and caution in his approach to monetary policy.