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FRANKFURT - The European Central Bank can press ahead with interest rate cuts this year but needs to rethink how it forecasts inflation and sets policy based on these projections, Belgian policymaker Pierre Wunsch said on Wednesday.
"With no sign of de-anchoring in the longer term, the costs of remaining tight for too long seem to outweigh those of a premature loosening," Wunsch, one of the first policymakers to warn about the recent inflation surge, said. "This underscores the need for a critical re-evaluation of our modelling frameworks and of the role of model-based projections in policymaking," he said.Models miss large economic shifts, struggle with extreme events and emphasize inflation further out over short-term developments, Wunsch said.
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