Dutch central bank leader thinks the ECB can take its “foot off the brake”

The head of De Nederlandsche Bank (DNB) said on Tuesday that he believes the European Central Bank can begin easing its “historically tight” monetary policy. Klaas Knot reaffirmed his position that the “inflation peak lies behind us,” and that he was optimistic about the mid-term inflation outlook, he said during a speech in London on Tuesday.

“Consequently, it can soon be appropriate to ease the currently restrictive monetary policy stance, and gradually take our foot off the brake. As a result, policy rates will slowly but gradually move to less restrictive levels,” said Knot, who has been the president of the Dutch central bank since July 2011.

“The precise timing, speed and scale of easing will also follow a data-dependent approach, with our projections being a key ingredient,” he told the Barclays-CEPR Monetary Policy Forum.

The ECB is set to hold a meeting to discuss interest rates next week, and it has widely been rumored that it will begin to phase in a period of cuts. However, Knot said that people should not automatically expect a series of rate cuts, noting that “2024 is still expected to be quite bumpy” with concerns about wage growth fueling inflation, and low productivity growth.

“Waters may still be rough in the time ahead, so it’s too early to declare that we have made a safe crossing. Our data-dependent approach allows us to assess the incoming data and inflation outlook moving from one meeting to the next and adjust our policy stance accordingly.”