ECB’s Holzmann: Nothing on QT Coming This Year; Can’t Separate QT Discussion From Operational Framework
6 November 2023
By David Barwick – VIENNA (Econostream) – The European Central Bank Governing Council is unlikely to reach any decisions this year pertaining to the pace of its quantitative tightening, inasmuch as that discussion cannot take place independently of the discussion of its operational framework, Council member Robert Holzmann said Monday.
Speaking to journalists on the margins of a conference of the Austrian National Bank, which he heads, Holzmann indicated that while there had been no discussion of accelerating the pace of QT at the level of the Governing Council, members had taken advantage of their meeting two weeks ago in Athens to discuss the matter informally.
‘There are discussions which take formally place, and then you had many opportunities to … talk in the background, to have over many lunches and dinners, bus rides, etc. an opportunity to talk about it’, he said. ‘And my optimistic understanding is that now, the problem is well defined, that there needs to be a solution.’
There may be other solutions in addition to his own current preference, he said, and he was looking forward to hearing the input of others.
‘But for this, we need to have first also the discussion about our operational framework, which we have not fully started yet’, he said. ‘And this will take some time … which … will reach over into the next year. But also it did allow us to have a very profound and sound discussion what this means for the operational framework and how we can keep our balance sheet clean over the long run.’
In terms of QT, there would thus be ‘nothing for this year’, he said. ‘And the thing is that … we cannot have the discussion separated from our operational framework.’
Lower-than-anticipated euro area inflation last month had to be seen in perspective, he argued, given the perfectly normal fluctuations due also to base effects that drop in and out of the data.
‘And so, one month’s data doesn't make a new development’, he said. Everyone was very cautious about the possibility that the last phase of restoring price stability would be the ‘difficult one’, he said, referencing a recent speech by Executive Board member Isabel Schnabel.
Schnabel’s speech made clear ‘how many aspects of monetary policy and the … underlying development may bring inflation back again’, he said.
A recent IMF paper was also ‘an early warning’ not to be complacent about the further evolution of inflation after an initial weakening of price pressures, he said.
‘So, I definitely belong to those who think that we should be very careful, that we should we stand ready again to hike if needed, and certainly don't declare victory too early on’, he said.
Still, he conceded, a rate hike in the immediate future was ‘not excluded, but the probability is pretty small.’
The October pause was ‘definitely’ the correct decision, he said, though he insisted on the message that September ‘may not have been the last hike, hikes are still possible.’
‘So, be prepared and don't expect … any reduction of the rates soon’, he said. ‘Eventually it will happen. But for the time being, I don't see it.’
There were many reasons to think the next move might instead be a further tightening of the monetary reins, he said. The violence in the Middle East ‘can easily lead to a further increase in energy prices’ and indeed energy prices had already risen over the last few weeks to 25% above projections, he said.
Moreover, weather could easily lead to significant food price increases, he warned.
‘So, there are many disturbances out there, which may still be there, which we should not underestimate’, he said.