European Central Bank’s Knot says monetary policy to ease ‘gradually,' as markets brace for June rate cut

LONDON — European Central Bank Governing Council member Klaas Knot said it would "soon" be time to ease monetary policy in the region, but cautioned that the process would need to be done slowly to keep inflation in check.

"It can soon be appropriate to ease the currently restrictive monetary policy stance and gradually take our foot off the brake ... policy rates will slowly but gradually move into less restrictive levels," Knot, head of the central bank of the Netherlands, said at the Barclays-CEPR International Monetary Policy Forum in London Tuesday.

A slew of ECB policymakers have firmly suggested a first rate cut in this current cycle will come at next week's June meeting, leading money markets to fully price in that scenario. In a Reuters poll of 82 economists this week, all said they expected a June cut.

But there is uncertainty about the outlook from there, particularly given the stickiness of services inflation in the euro zone and the murky global picture.

While it was the last of the three to begin hiking, the ECB is now near-certain to begin cutting before both the U.S. Federal Reserve and the Bank of England, which have both indicated they require further progress to be made on reducing inflation.

Only one more ECB rate reduction has been fully priced in by markets for the remainder of the year, a sharp revision from expectations at the start of the year for up to six cuts starting in spring. In the same Reuters poll, a majority forecast two additional ECB cuts, in September and December.

Knot, usually known for his more hawkish stance, said Tuesday there had been "clear disinflation" since the peak above 10% in late 2022, particularly in goods inflation. However, he said the next phase of the process was likely