Exclusive: ECB’s Holzmann: Most of Us Agreed Monetary Policy Now Needs a Steady Hand

5 August 2025

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s Governing Council for the most part agrees that it is now appropriate for a ‘steady hand’ approach to monetary policy, according to Council member Robert Holzmann.

In an interview with Econostream (transcript here) on Monday, Holzmann, whose term as governor of the Austrian National Bank will conclude at the end of this month, said, ‘What most of us agreed at the last meeting is that monetary policy now needs to be characterised by a steady hand.’

‘After so many interest rate cuts, we are at a level that is expansionary’, he continued. ‘For Europe and the world, r* has quite likely gone up again, so we would be well-advised to keep interest rates where they are and await further economic developments, without trying to satisfy market expectations.’

Holzmann confirmed the impression of many observers that comments by ECB President Christine Lagarde following the Council’s meeting on 24 July reflected this assessment.

‘This was a largely shared view, though not by all’, he said. ‘We’re in a good position and it’s now time to wait.’

There was ‘no need to react’ to potential undershooting, he said.

As for the ECB’s next step, Holzmann was careful not to make any predictions, but said he ‘wouldn’t exclude’ that it could actually turn out to be a hike rather than a cut.

‘The next step could be up’, he said. However, for the moment there was still a great deal of uncertainty around trade, and it could not be said for sure whether the ‘moderate’ price effects of trade tensions so far would ultimately give way to higher inflation, he said.

The September Governing Council meeting would probably not turn into a battle between different camps or in general be an occasion ‘in which the world is turned upside down’, he said. That was at least partly because if things remained as they were currently, then the new projections were unlikely to undergo major revisions, he said.

The US dollar’s recent bout of weakness could be near the end, he said. ‘[M]y sense is that despite all the problems caused by US policies, the dollar will remain a major player in the international monetary system, so I don't expect a continued depreciation’ , he said.

Future US budget deficits would need financing, implying that US debt would have to remain sufficiently attractive to investors, he reasoned. The tariffs would not generate enough revenues to plug the hole, he predicted.

‘So, we may already be at the end of the current dollar depreciation’, he said. ‘My sense is that it won’t continue much beyond from around where we are now, which is near the long-term average.’

The trade deal between the US and Europe paved the way to ‘a period in which growth is not as high as we had hoped’, he said. Associated with this would probably be higher inflationary pressure, or ‘a period in which lower growth requires further policy support’, he said.

‘Which scenario we get is open, but the next couple of years will be difficult’, he said. ‘I'm not optimistic about growth, because even if German infrastructure investment is €100 billion and defence spending several times as much, it won’t make a huge difference, given that other countries face fiscal struggles.’

The likely further increase in European debt-to-GDP ratios could soon reach the point of making life ‘more difficult with respect to growth and financial stability but also in terms of finding an exit strategy that doesn’t involve a major economic shake-up’, he warned.

Europe, he said, lacked what it would take to simply grow its way out of debt. ‘So, it’s not a catastrophe, but it’s not a bright future’, he said.

The trade deal may have served US interests somewhat better, he said, given the additional revenues from tariffs and the likely lower trade deficit. In the longer run, however, the US may find that the economic transformation it is seeking is elusive, and even if it happens, it may not lead to the desired growth of good jobs, he said.