ECB's Wunsch says central bank may need to cut rates below 2%, FT reports

Reuters

18-05-2025

May 18 (Reuters) - The European Central Bank may need to cut interest rates to "slightly below" 2% as global trade tensions pose downside risks to inflation and growth, Belgium's central bank governor, Pierre Wunsch, told the Financial Times in an interview published on Saturday.
Wunsch, previously known for his hawkish stance, told the FT that recent shocks and uncertainty could justify a mildly supportive monetary policy, including a potential cut below the current 2.25% deposit rate.
Wunsch sees no case for a larger, half-point cut in the foreseeable future, the FT quoted him as saying.
He also said that developments since U.S. President Donald Trump's tariff announcements on April 2 had created clear "downside risks to inflation" in the euro zone, along with additional threats to economic growth.
Wunsch told the FT that the euro zone might be exposed to "negative [economic] shock in the short term" that might be followed by a "positive shock in 2026 and 2027."
In an interview with the FT in February, Wunsch had warned against "sleepwalking" into excessive interest rate cuts, urging caution as the ECB considered further reductions.
Markets now see a roughly 90% chance of an ECB rate cut on June 5, but have priced in only one additional easing over the rest of the year, suggesting that the ECB's deposit rate could bottom out at 1.75%.
Wunsch said he was "not shocked" by such forecasts and was open to contemplating further easing, according to the report.