ECB Policymaker’s Support for Interest Rate Cuts

FRANKFURT (Reuters) – Klaas Knot, a European Central Bank (ECB) policymaker, expressed support for market expectations of interest rate cuts at the ECB’s upcoming meetings on January 30 and March 6. Despite traditionally favoring tighter monetary policies, he cited “encouraging” economic data as contributing to his stance.

The euro zone economy continues to show weakness, with inflation slightly above the 2% target. This has led traders to anticipate further cuts, especially after President Donald Trump refrained from implementing expected trade tariffs against Europe.

Knot mentioned that while he is comfortable with immediate market expectations, uncertainty looms regarding future policies, particularly in light of Trump’s trade policies that may impact the global economy and inflation. Money markets are nearly fully pricing in four additional rate cuts this year, which would reduce the deposit rate paid to eurozone banks to 2%.

Although some colleagues have discussed the possibility of cutting rates below this level, Knot remains cautious, suggesting that if the economy shows signs of recovery and approaches the target by mid-year, further stimulative measures may not be necessary. He emphasized the importance of data in guiding ECB decisions moving forward.