ECB’s Holzmann: Can Probably Reach the Terminal Rate in 3Q At the Latest

5 February 2023

By David Barwick – FRANKFURT (Econostream) – The European Central Bank still has a considerable way to go, possibly even until the third quarter, to reach the terminal rate of the current hiking cycle, according to Governing Council member Robert Holzmann late Friday.

Interviewed on Austrian television station ORF, Holzmann, who heads the Austrian National Bank, said that ‘[w]here the terminal rate is, we don't know, but we assume it is still quite a bit above the current rate of 2.5 or 3%. Probably, however, this level can be reached in the middle [of 2023] or at the latest in the third quarter and from then on, or the beginning of next year, slowly start to decline.’

‘Interest rates have risen, but are still at a comparatively moderate level’, he said. ‘We are now at 2.5% with a headline inflation rate in Austria of over 10% and over 8.5% in Europe, so we are still some time away from where we can stop raising rates.’

Asked by the interviewer whether the terminal rate in Europe could reach ‘4, 4.5, maybe even 5%’, Holzmann observed that this variable was seen at 5% in the US, whilst ‘in Europe it is lower.’

‘Where it is exactly, we don't know, but it could be on the order of magnitude that you mentioned’, he added.

Inflation should come down during the current year, he said, so that at year’s end, the inflation rate will be ‘much lower’.

‘But what we don't know at the moment is how the prices for services and industrial goods and other goods, which are still driven by oil prices of the past, will develop, i.e. those that do not depend only on energy or food, variable products’, he continued. ‘And at the moment this core inflation rate ... is still unchanged, that is, it has not gone down, it has continued to go up. And as long as these drivers are not reduced, it is very difficult to assume that inflation will fall.’