STIR: Knot Criticises EZ Fiscal Stance, Fails To Shift ECB Implied Rates

ECB implied rates were little moved by comments from Dutch Central Bank Governor Knot, who criticised the Eurozone’s “inappropriate fiscal stance” but did not comment on the broader outlook for ECB policy.

• There remain 65bps of easing priced through year-end, with 141bps (i.e. almost 6x25bp cuts) priced over the next 8 meetings to July 2025.
• Knot, a traditionally hawkish member of the GC, said that a “a more restrictive fiscal policy would have been desirable” in helping the ECB bring inflation back toward the 2% target.
• On the EU’s new fiscal rules, he noted that the “compliance and enforcement of the rules” would determine if member states actually reduce debt burdens in times of economic expansion.
• The MNI Policy Team reported in July that the EC was likely to go easy on enforcing EU fiscal rules on high-debt states for fear of sparking a fire sale of government bonds, underscoring Knot’s concerns.
• Meanwhile, Bank of Portugal Governor re-iterated recent dovish remarks in podcast comments.