Posted on 12/02/2019 at 2:35 pm

Knot (ECB) advocates patience on rates in the face of economic slowdownThe European Central Bank must take its time before raising interest rates, said Klaas Knot, the governor of the Bank of the Netherlands at the Financial Times. / Photo archives / More Bank / Lisi Niesner
                                                                                                    Thomson More Bank

FRANKFURT (More Bank) – The European Central Bank must take its time before raising interest rates, said the governor of the Bank of the Netherlands in the Financial Times, in what looks like a flip-flop for a supporter of monetary orthodoxy at the institution's Board of Governors.

With the current slowdown in growth, some ECB officials have advocated patience in the withdrawal of monetary support measures but the position of Klaas Knot seems to be pushing for the prospect of a rate hike, still officially envisaged for the second half of 2019.

The Dutch central banker, sometimes cited as a potential candidate for the succession of ECB President Mario Draghi at the end of October, explains in the interview that a rate hike will not be justified until there is no more 'elements showing an acceleration of inflation towards the goal of just under 2%.

"We have to be patient and, from my point of view, modest about when we can expect inflation to converge towards our medium-term goal," he says. "At this moment waiting and seeing is probably the optimal attitude."

However, he considers it premature to speak of an upcoming recession in the euro zone.

"The current situation could last for a few quarters but I still believe (…) that growth will then return to levels slightly above potential," says Klaas Knot.

The ECB, which ended in December its program of asset purchase of 2.600 billion euros, currently sticks to its forecast of stable rates "until the end of the summer" 2019 .

Markets pushed back their expectations in mid-2020 as economic indicators indicate a sharp slowdown in activity, which will no doubt force the central bank to lower its projections.

(Balazs Koranyi, Véronique Tison for French service, edited by Blandine Hénault)