Exclusive: Transcript: Brief chat with ECB Governing Council member Holzmann on 27 May 2024

28 May 2024

By David Barwick – VIENNA (Econostream) - Following is the transcript of a brief chat that took place on 27 May 2024 between Econostream and Robert Holzmann, Governor of the Austrian National Bank and member of the Governing Council of the European Central Bank, following the latter’s participation in a panel discussion.

Q: Governor, is there any chance you’ll oppose the rate cut next week?

A: I don’t have information that makes me feel completely confident, but what I see at the moment is that the disinflation process is indeed underway and that the different price indices are showing decreases. And I don’t see much reason to fear a hiccough there. So, as things stand now, I would support a cut next week, but I will also warn that there should be no automaticity about further moves, meaning that future reductions in interest rate cuts should not happen automatically. What changed my mind is essentially the weakness on the output side. That is, lower growth, which is having a dampening effect on prices. Activity here is very weak compared to the US economy. This is why I am ready to support one cut, but each and every step that follows will need its own separate justification. In September and in December we will have new information and we will have to make a new decision. So, I would not say now that the first decrease in interest rates automatically means other decreases.

Q: What do you think about the wage data that we had last Thursday?

A: This was definitely a wake-up call, but again, high wage data don’t automatically mean that there’s a risk to prices. If and as the producers face a shortfall in demand, they will not be able to pass on the input prices. But we need to look at the data to be sure whether this hypothesis is correct.

Q: Mr Lane seemed rather dovish in the interview that appeared today, leading me to suspect that he has seen the projections and they will not be a problem.

A: We will look at the data, and what we’ve seen with regard to wage increases will definitely lead us to be cautious in making any predictions about what could happen in September. We need to see the developments.

Q: And do you have a view as to how far how fast might be right for the ECB?

A: I think if and as we move, then 25bp is okay, and the rest we will see, it depends on the data. If the data turn out as the market projects, then of course we can continue, but one element that I always insist on is that if we increase our gap with the US to a certain extent then I fear that the exchange rate will come into play and hit us in terms of inflation. I’m not worried about a 25bp difference versus where we are now, but if we were to move three times and the US didn’t move, I would be afraid that then the exchange rate would jump.

Q: But this scenario has become unlikelier, no?

A: Well, when I read the comments of my American colleagues, nothing is assured. And we may also get an issue in terms of geopolitics. So, 25bp now seems justified on the basis of the data, but for the rest, we have to make separate decisions.

Q: Between now and the end of the year, what would be a reasonable expectation, if the ECB’s projections materialise?

A: I would say two cuts, at maximum three. But this is if everything goes according to our optimistic assumptions. If things change, then of course this would also change.