ECB’s Holzmann: Rate Hikes in September and December Would Be Consistent with Guidance

30 March 2022

By David Barwick – FRANKFURT (Econostream) – Rate hikes by the European Central Bank in September and December of this year would be in line with what the ECB has stated, Governing Council member Robert Holzmann said on Wednesday.

In a press conference at the Austrian National Bank, which he heads, Holzmann pointed to the intention of the ECB as stated this month to exit the asset purchase programme (APP) and to the ECB’s ‘formulation that is deliberately ambiguous’, meaning the change in the wording of the forward guidance to indicate that a rate hike would take place ‘some time after’ net purchases under the APP end.

The ECB would in any case stop asset purchases before hiking rates, he said.

‘However, according to the forward guidance, the formulation, this can also take place quickly, and therefore, even if it were decided that there would be no more asset purchases as of July, one could, if one wished, take the first interest rate step in September and the second in December’, he said. ‘That would be consistent with the announcements.’

‘The thinking is this’, he elaborated. ‘[I]f we were to wait a little longer, and we find out in December that inflation may not have fallen too much, but has risen, we would certainly then have to take a larger interest rate step, which perhaps cannot be taken immediately, because it will be difficult to go beyond 0.25%.’

‘Given the information we have at the moment, it is good to think about taking two interest rate steps now’, he said.

Negative interest rates are an ‘anomaly’, he said.

Higher official borrowing costs are ‘certainly my wish, but, I believe, not just illusion’, he said. ‘And since inflation, as we also forecast it, will be higher than we assumed at the beginning of the year, even a slight increase as proposed here would still keep the real result lower than at the beginning, which means that even if we were to make this increase, we would still not be ahead of the curve, but slightly behind it.’

According to Holzmann, inflation expectations are showing ‘slight movements, and individual data indicate that there is an upward movement.’

However, a disanchoring is not being observed, he said.