ECB Policymaker Says Limited Inflation Divergence is Acceptable

European Central Bank (ECB) member Pierre Wunsch suggests the ECB shouldn't react to small deviations from its 2% inflation target, especially when caused by factors beyond its control. He believes the projected dip in inflation may be less pronounced than expected, and the slowdown is due to a positive supply shock. Wunsch notes that the likelihood of another rate cut is receding but could come back if there are downside surprises, according to a Bloomberg article https://www.bloomberg.com/news/articles/2025-10-17/ecb-can-live-with-limited-divergence-from-2-target-wunsch-says.

European Central Bank (ECB) member Pierre Wunsch has urged the ECB to exercise restraint in reacting to small deviations from its 2% inflation target, particularly when such deviations are due to factors outside the control of monetary policy. Wunsch, the Belgian central-bank chief, made these remarks during an interview in Washington, where he was attending the IMF’s annual meetings.

Wunsch expressed that he is not overly concerned when inflation deviates by 10, 20, or 30 basis points from the target. This stance comes as the ECB’s deposit rate is currently set at 2%, and price gains are around the same level. While the ECB anticipates inflation to undershoot its goal next year, Wunsch believes that the projected dip may be less pronounced than initially expected. He attributes the slowdown to a positive supply shock, specifically the decline in energy inflation, the article noted.

The ECB’s Governing Council member also noted that the likelihood of another rate cut is diminishing but could re-emerge if there are any downside surprises in the coming months. Wunsch emphasized that the ECB should remain flexible and consider the broader economic context when making policy decisions. He stressed that if the economy is weak and trending down, the ECB should be more supportive. However, if the economy is growing at its potential, the ECB should avoid overreacting to minor deviations from the inflation target, the report added.

This perspective contrasts with views from some ECB policymakers who advocate for further easing. For instance, France’s Francois Villeroy de Galhau and Lithuania’s Gediminas Simkus have suggested keeping the door open to additional monetary policy easing. Meanwhile, others, like Wunsch, are more cautious, arguing that the ECB should keep an open mind about the direction of its next move, according to the same Bloomberg coverage.

In the broader context of the global economy, analysts and investors currently expect only minor chances of another rate cut in the near future. The debate among policymakers about how elevated uncertainty over issues including global trade will affect the 20-nation euro zone remains lively, the article observed.

References

https://www.bloomberg.com/news/articles/2025-10-17/ecb-can-live-with-limited-divergence-from-2-target-wunsch-says