ECB’s Holzmann: Entire Governing Council Prepared to Act if Inflation Climbs Further

20 December 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Robert Holzmann on Saturday said that the entire Governing Council was prepared to act if inflation climbed further.

In an interview on Austrian radio, Holzmann, who heads the Austrian National Bank, said that ‘[a]s long as the projected inflation rate is below 2%, further monetary policy measures are needed. But, what we have done ... we have already made substantial restrictions in the purchase programmes in Thursday's decision.’

The assumption is that inflation would ‘decline steadily’ next year, he said. There is a risk of higher inflation, but the materialisation of such a risk will be quickly evident and lead to a change in views and in the orientation of monetary policy, he said.

‘Inflation, as it is forecast, will move towards 2%’, he said. ‘Whether it comes below 2% in the final forecast, or above, will determine which measures of monetary policy are adjusted. All of us in the Governing Council are ready to put measures in place if inflation should increase, if the inflation forecast should increase, then existing measures that are still in place can be reduced, suspended, and then there will also be an increase in interest rates again.’

Were inflation to go to 3% beyond next year, that would ‘absolutely’ be a reason to act and raise the policy rate, he confirmed.

Last Thursday’s decision by the Governing Council was ‘very balanced decision overall’, he said, declining to elaborate on his own position in the deliberations and playing down reports of conflicting views.

‘But I can assure you that if there are differences in the voting behaviour, there are not big gaps here, but rather nuances that play a role, for example in the assessment of where inflation lies at the end of the planning horizon’, he said.

Omicron, he made clear, would not derail the recovery. ‘Our assessment, which is also reflected in the forecasts, is that we expect a weakening of the upswing, i.e. that the economic development will not be as good, but that despite everything the recovery will be very strong and that we will already reach the level of 2019 again at the beginning of 2022, and that the economic development will continue to be above 4% for the year’, he said.

Asked whether monetary policy was the hostage of heavily indebted member states, Holzmann conceded that ‘fiscal dominance is an issue that concerns us all.’

‘However,’ he continued, ‘I cannot see this dominance from the decisions we have taken so far, also because there are enough people in the Council who are quite aware of the issue and would also correspondingly demand counteraction and would also articulate themselves accordingly.’