Europe

ECB's Wunsch uncomfortable with multi-year commitment on rates -CNBC

2 minute read

The headquarters of the European Central Bank (ECB) are pictured in Frankfurt, Germany, July 8, 2020. REUTERS/Ralph Orlowski/File Photo/File Photo

FRANKFURT, July 23 (Reuters) - European Central Bank policymaker Pierre Wunsch said on Friday he was uncomfortable with the ECB's new guidance, which financial markets have taken as a commitment not to raise interest rates for "five or six years".

Wunsch was one of just two ECB governors who dissented from Thursday's decision to push out the timing of any rate hike, which is now off the table until inflation is within sight of the euro zone central bank's 2% target.

Wunsch said his disagreement "shouldn't be dramatised" but went on to say the ECB had tied its hands for years to come and could face questions about its independence from governments -- even firing a rare shot at some of his colleagues.

"I guess it boils down to the kind of commitment you can take over a possibly long period of time -- we're maybe talking five or six years, if we look at market expectations," Wunsch, who is Belgium's central bank governor, said in an interview with CNBC.

"I didn't feel comfortable taking a commitment for such a long period."

He added he would have liked "an escape clause" allowing the ECB to raise rates if faced by risks such as fiscal dominance -- that is, the central bank setting its own policy to suit a particular government's financing needs.

This has been a concern of northern European countries since the euro zone's debt crisis a decade ago, when Mario Draghi's ECB said it would buy the bonds of countries that requested financial assistance.

"We may be faced by issues of fiscal dominance and issues of financial dominance," he said.

"Maybe I'm just taking the forward guidance too seriously because some of my colleagues... (said): 'Oh then we just change forward guidance'."

Reporting By Francesco Canepa Editing by Balazs Koranyi and Catherine Evans

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