ECB Brief: Holzmann Says July Governing Council Meeting Will Be ‘Most Interesting and Difficult’

29 April 2022

- Holzmann: One purchase programme still there, scheduled to end in July
- Holzmann: Greatest concern is inflation expectations

By David Barwick – KLAGENFURT, Austria (Econostream) – This is a summary of key comments made late Thursday by European Central Bank Governing Council member and Austrian National Bank Governor Robert Holzmann, speaking at a public event at the university here.

• 'When do we start raising [rates]? Well, here is always the problem, the worry, is it too soon? It’s a little characterized by what was at the beginning of the 2010s ... when interest rates were already increased and then had to be reduced again because it was too soon. ... If you are too soon, there is a risk that you will slow down the upswing. If you're too late, what happens is that inflation expectations then come unanchored, and then you have to really go all out to get them back under control. And this point, that's where we are right now. Probably the most interesting and difficult monetary policy meeting will take place in Frankfurt this July. The question here is, are we finally going to stop buying via this smaller program as well? Are we going to raise interest rates now, by what amount and at what speed?'
• 'The greatest danger we’re concerned about is that inflation expectations are no longer so firm at 2%, but when inflation has been 7, 8 and more percent for some time, even if it comes down, the markets, financial markets, can say to themselves, “I don't know whether the ECB will manage to get back down to 2%. I'm a trade unionist, I'm an entrepreneur, so I expect higher inflation.' And once that happens, that inflation expectations are unanchored, it's very difficult...'
• 'Some of the purchase programs are already over, one is still there and is scheduled to end in July. But these purchase programs always take up a lot of room in the balance sheet of the ECB, the Austrian National Bank. And there's the question of when we start paying back the whole thing, because if ... there's a new, big need, then we have to be prepared.'
• 'Now we're almost out of the pandemic.'