ECB’s Holzmann sees ‘a Certain Probability That There Will Be No Rate Cut at All This Year’

8 February 2024

By David Barwick – FRANKFURT (Econostream) – The European Central Bank Governing Council might not hike rates at all in 2024, or only once the year is almost over, Council member Robert Holzmann reiterated on Thursday.

In an interview with German daily Frankfurter Allgemeine Zeitung, Holzmann, who heads the Austrian National Bank, said, ‘There is a certain probability that there will be no rate cut at all this year or only at the very end of the year. In the past it has been shown again and again that combating inflation and the time needed for this are often underestimated.’

Holzmann dismissed the recent decline of inflation as having been due to base effects, making the deceleration ‘not yet a signal that we are already moving towards the ECB's target of 2%.’

An evaluation of the risks was important to interest rate decisions, and geopolitical risks had increased.

‘All of this should make us cautious’, he said. ‘There is also a strategic dominance of waiting: it is easier to cut interest rates more quickly if inflation falls faster than expected than it is to raise them again immediately after a rate cut if there is a setback in inflation. The loss of trust would be very high.’

Companies would pass on to consumers as much of the increase in their costs as they could, he said.

‘Ultimately there will be price increases’, he said. ‘This is also made easier by the fact that the governments' fiscal policy, if all special funds are taken into account, continues to be expansionary.’