ECB’s Holzmann: Governing Council Was ‘To a Certain Extent’ Its Own Hostage on Thursday

8 June 2024

By David Barwick – FRANKFURT (Econostream) – The European Central Bank Governing Council’s decision to cut rates last Thursday also reflected the sentiment that it had left itself little choice, Council member Robert Holzmann said Saturday.

Speaking on Austrian Radio, Holzmann, who heads the Austrian National Bank, said that there had been ‘different points of view’ during last week’s Governing Council meeting, but that ‘the Council's opinion was that there was no other option’.

The ECB was ‘to a certain extent’ a hostage to its own previous communication, he said.

In reaching a decision, not only were the available data relevant, ‘but also the expected data play a role, and the expected data also depend on other circumstances, such as geopolitics and the assessment of this’, he said to explain his own dissent. ‘But also the questions related to how the Fed and the market will react if the difference between the Fed and the euro interest rate becomes too large.’

Were the ECB to cut three times and the Fed failed to start easing, the difference would reach 75bp, ‘and it would certainly be the case that the exchange rate would then change and thus also increase inflation’, he said.

Holzmann appeared however to suggest that the ECB’s rate cut had not necessarily been a poor decision.

‘I think it's a step in the right direction’, he said. ‘I hope - I don't know - that there won't be a need to raise interest rates again.’

The pace of future easing would depend on the data, he said, noting again the possibility of a particularly difficult ‘last mile’.