ECB’s Holzmann: I Consider an Interest Rate of Zero or Below an Exception
19 March 2021
By David Barwick – FRANKFURT (Econostream) – An interest rate at or below zero is an exception and an exit from such a situation will be discussed after the pandemic is overcome, European Central Bank Governing Council member Robert Holzmann suggested on Friday.
In an interview given to Austrian daily Wiener Zeitung and also published on the website of the Austrian National Bank, which he heads, Holzmann, asked whether concern about high inflation was growing in Europe, answered that ‘[o]nce the pandemic is over, there will probably also be a jump in growth in Europe in the autumn, if only because of the catch-up effects.’
‘Irrespective of this, the question is whether this could jeopardise the medium-term target of an inflation rate of around 2%’, he continued. ‘Our objective is to keep inflation expectations in line with our medium-term objective of price stability. Ultimately, this is also a question of our credibility.’
As for an exit from currently very accommodative monetary policy, that ‘will be part of the discussions one day’, he said. ‘We will discuss whether, when and how - that applies to the US as well as to the euro area - after we will have overcome the pandemic. Personally, I consider an interest rate of or even below zero as an exception.’
Holzmann said however that any increase in borrowing costs that came too early and while the equilibrium interest rate was below ‘would weaken the economy’. He called for a new economic phase akin to the so-called Gründerzeit of the 19th century ‘in which new technologies and investments trigger a productivity boost.’
Digitalisation and climate change offer opportunities to do this, he said. Another option is to motivate greater labour market participation among older people, he said.
‘This is also a way of achieving a higher equilibrium interest rate and easing the burden on public finances’, he said. ‘Both are necessary, but they are outside the ECB's competence and responsibility.’
