ECB’s Wunsch: Need time to assess full impact of the recent turmoil

National Bank of Belgium Governor and European Central Bank (ECB) Governing Council member Pierre Wunsch, said on Wednesday that the central bank will probably need to raise rates further if market stabilize, but he warned they need time to assess the full impact of the recent banking crisis.

Wunsch, one of the more hawkish ECB members, argued that recent developments could have an impact on lending, helping the central bank in curbing inflation. Eurozone banks have strong liquidity ratios, he added.

Earlier, ECB President Christine Lagarde said it is important that ECB's monetary policy “works robustly in the restrictive direction and that process is only starting to take effect now."

Last week, the ECB raised its key interest rates by 50 basis points and dropped their forward guidance of significant rates ahead on the back of the financial turmoil. A different outcome, Wunsch explained, would make people say “they know something we don’t know” and he said that "what they know is what they see."

Market reaction

The EUR/USD is up for the fifth consecutive day on Wednesday, hovering slightly below 1.0800, moving sideways as market participants await the Federal Reserve’s decision.