Dutch central bank leader is "comfortable" with likely rate cuts; Trump tariffs looming

The president of the De Nederlandsche Bank, Klaas Knot, said he feels “comfortable” with the expectation that the European Central Bank (ECB) is going to lower the interest rates further next week, and then again in March. The Dutch central bank leader said this in an interview with Bloomberg at the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday. While he was upbeat about European economic data, he also has concerns about U.S. trade policy with Donald Trump's return to that country's presidency earlier this week.

"I’m pretty comfortable with the market expectations for the upcoming two meetings," Knot said about the likelihood of interest rate cuts during the interview. "Further than that, I find it too early to comment."

The ECB is going to make a new decision about the interest rates next week Thursday, and investors are counting on the interest rates in the eurozone being dropped by another quarter of a percentage point. The central bank lowered the interest rates on four occasions last year.

Inflation in the eurozone is dropping towards the goal of two percent, and that gives the ECB space to lower the interest rate further to stimulate the ailing economy. “The data is encouraging,” Knot told Bloomberg. “It confirms the broad picture that we will return to target in the remainder of the year, and hopefully the economy will also finally recover a bit.”

Nevertheless, U.S. President Donald Trump campaigned on the promise to slap tariffs on some trading partners, and expanded on this after his election in November. The European Union could be faced with tariffs on goods imported into the United States, which would force American consumers to pay higher prices for those products. He acknowledged that U.S. trade policy is a “clear downside risk on the horizon."

Knot is joined by other ECB decision-makers at the WEF. The ECB president Christine Lagarde is also present at the economic summit in the Swiss Alps, as is the French central bank president François Villeroy de Galhau and the German Bundesbank president Joachim Nagel.

Lagarde explained to the TV channel CNBC that the ECB will continue its gradual interest rate policy. She thinks that the ECB is not being too slow in lowering interest rates. Lagarde has said several times the interest rate level is decided meeting by meeting and is dependent on the economic figures.

Lower interest rates reduce borrowing costs for households and companies. As a result, they may spend and invest more.

The ECB president said during the meeting in December that more interest rate cuts can be expected this year. The main interest rate is now 3 percent. Many analysts and stock traders think that interest rates will fall to 2 percent by the middle of this year.