ECB’s Holzmann: Would Make Sense to Undershoot Inflation Target for a While

28 October 2024

By David Barwick – WASHINGTON (Econostream) – The European Central Bank should probably undershoot its 2% price stability target at least initially, Governing Council member Robert Holzmann said Saturday.

In an interview with GlobalMarkets, a newspaper published at the annual meetings of the IMF and World Bank, Holzmann, who heads the Austrian National Bank, said undershooting would be positive for the ECB’s credibility.

‘I think at the beginning it makes sense to undershoot, because if you remain at 2.5% people will say we don’t take the 2% target seriously’, he was quoted as saying. ‘There is quite likely a temporary undershooting of inflation. It’s useful to be first somewhat below the target, before moving back again. But this would not be a failure of monetary policy.’

According to the newspaper, Holzmann rejected the idea that tight ECB policy was responsible for anaemic economic activity in the euro area, instead attributing the weakness to poor Chinese growth and higher household savings.

‘The interest rate at 4% and now 3.25% is not a driving force of too much saving — maybe a little bit at the beginning — and our data shows financing conditions are not a constraint for enterprises’, he said. ‘Monetary policy is not the primary constraint on growth, it is rather driven by other macro elements.’

The ECB may have been ‘too successful’ in its effort to boost low euro area inflation during the decade before the pandemic, he said.

‘A situation may emerge in which we remain a little bit below 2% but it would not be sensible to do the same policy as before, with all forces moving inflation up to 2% — in other words putting a lot of money on the table, which afterwards creates inflation’, he said.