Transcript: Interview with ECB Governing Council member Kocher on 07 November 2025

12 November 2025

By David Barwick – VIENNA (Econostream) – Following is the full transcript of the interview conducted by Econostream on 07 November with Martin Kocher, Governor of the Austrian National Bank and member of the Governing Council of the European Central Bank:

Q: Governor, what’s your attitude towards cutting again, whether in December or early next year?

A: Given economic data and the projections, ECB monetary policy has been in a good place for several months. Risks to the outlook are higher than usual, though more balanced than a couple of months ago. Things can still go in any direction, so nothing is predetermined and we must look at the data. That we are close to or at the end of the easing cycle is clear, given that we expect inflation to stabilize around our target. So, it’s hard to say what will happen until December, but I'm very hopeful that the slightly better outlook will continue and we can stay in a good place.

Q: Markets are rather confident nothing's going to happen in December. Are they overconfident?

A: If there is no change in what we're seeing – a big “if” given the risks – then you would have to come up with good arguments for changing the policy stance. The December meeting is special because of the updated projections. This new information will be helpful, especially the outlook for 2026 and 2027, which will be more certain than in September.

Q: One market participant said you’re not firmly opposed to cutting in March; it just depends.

A: Correct. If you’re consistent with the data-dependent approach and think pre-commitment is not good under high uncertainty, then you must be ready to draw the appropriate conclusion from developments, whether they imply cutting or hiking. For markets it’s a bit unusual, but when you're at the end or very near the end of a cycle, it's logical that moves can go in either direction. As long as the data are stable, the situation will not change, but if something does change, we have the flexibility to react quickly, precisely because we are not pre-committing to any rate path.

Q: Still, it would be more surprising now if the next move were a cut, no?

A: If you're open to a move in any direction, then any move could be a surprise, especially after a long hold. There were times when policy rates did not change for years. Of course, those were calmer times. That’s why it's important to keep some power dry for whatever might arise in either direction. Hopefully we won’t see downside risks materialize, as some would be very detrimental to growth. But given recent data, a somewhat stronger growth outlook is not impossible.

Q: To the extent that you’d be reluctant to cut without a good argument, is part of the reason the fact that one cut would do nothing, so it would take a new series of cuts unlikely to be justified?

A: Any decisions we take would be viewed very closely by markets and the public. People would ask what's next and you would need a good argument for any kind of move. If you have a good argument, fine; if you don't, then there is perhaps no need for any change.

Q: To what extent could a good argument be based on perceived risks rather than actual outcomes?

A: Risks differ in distribution, intensity, and materialization. The latter is easiest, since if a risk materializes, we may need to react quickly. Judging distribution and intensity takes individual assessment. There are empirical data, but it's hard to precisely determine intensity and distribution. So, policymakers’ individual judgment will always play a role. Also, it’s difficult to react to small shifts in distribution or intensity without actual materialization; for monetary policy decisions there may not be a real economic effect or an impact on inflation. For me, the ultimate litmus test is the inflation outlook.

Q: At the last Council meeting we had good GDP data on the same day and better-than-expected PMIs previously. Would the outcome of the meeting have been very different otherwise?

A: These are only first estimates, but that said, the data all looked slightly better than expected. My personal view is that this did not have a big influence on our decision, even if everybody was glad to see such data. After all, growth rates in Europe compared to the US, for instance, are not spectacular at the moment. And seeing countries whose business cycle lacks dynamism doing slightly better was very welcome.

Q: One source of uncertainty is ETS 2. What's your thinking on this?

A: If it's introduced, it will have a one-time inflationary effect for one year and then drop out of annual inflation, unless the cost increases. I personally think that this issue is getting a bit too much attention. We're talking about a very modest effect on inflation. The December projections will tell us more about it. Perhaps we'll see also different scenarios based on how ETS 2 is rolled out.

Q: The original assumption, at least, is that it would add 0.3 point to inflation.

A: Yes, but this was before the Council of Ministers decided on a slightly different setup.

Q: So, has the impact been revised down to 0.2 point?

A: I haven't seen anything yet, and as far as I know there will be no projection of the impact before December. The December projection will take everything we know into account.

Q: And if the impact is very modest, then the base effect in the following year when it drops out will also be very modest. So, it's not a big factor in your thinking.

A: It’s important to discuss and understand very well these effects, but any resulting deviation from our target should be mild. I would not be too concerned if we're one or two tenths of a point above or below; that's normal. You cannot, of course, expect to always hit the target exactly.

Q: Which takes us to the question of how big the miss can be for you to say, “We have to act."

A: The projections are one thing. Expectations are another that we’re discussing intensely and watching very closely. I think inflation expectations are the most important aspect, more important sometimes than even the outlook and modest deviations from our target.

Q: Especially with regard to the 2028 outlook, which is so far out.

A: Especially for 2028, absolutely.

Q: This leads me to think of food inflation, which people notice often and is relatively high.

A: Food inflation is important in our discussions, because it disproportionately affects lower income groups. We’re very aware that in the medium to long term, bad weather, climate change, droughts and so on could lastingly affect food prices. That's problematic, because of social implications. When you look at public discussions in euro area countries, it’s not so much about services inflation, which is the largest part of our inflation; it's about food inflation. The reason is precisely the social aspects.

Q: At the same time, the ECB just updated its tracker showing 2026 wage growth well below 3%.

A: We have to distinguish between the collective bargaining wages captured by the wage tracker and the individually agreed wages that more closely represent the overall development. There might be differences, although the tracker is a good indicator. But if wage growth moderates as the tracker suggests, then services inflation should moderate as well.

Q: On another topic, how concerned are you about Chinese goods flooding European markets?

A: This is a concern more with respect to competitiveness. We've seen areas where the influx of Chinese goods might lead to dependencies on specific products and to supply issues. For instance, semiconductors, which lately have led to problems in the car manufacturing industry. As for inflation, this might go in either direction. It might have a disinflationary effect via cheaper imports, but in the other direction, bottlenecks could force firms to invest more in diversification or to buy goods that are more expensive. But things can change quickly, and now China and the US have announced an interim trade agreement, so let's see to what extent this rerouting of trade flows continues.

Q: Are you optimistic that German fiscal spending is going to take place as envisioned?

A: Absolutely. It's a clear political commitment by the German government to provide the stimulus. Some of it will be seen in the data in 2026, but it will probably take until 2027 to fully take effect. Infrastructure investments take time, and preparation of specific projects will take at least several months, even one or two years. Defense spending is harder to assess. It depends on sourcing and thus on potential capacity constraints in production in Europe. If at all, the effect might lead to slightly higher prices. But it will develop over time, so I don’t expect a strong effect that unfolds very quickly.

Q: Still, it would be correct to say that in terms of confidence and actual economic developments, and ultimately monetary policy, a lot hinges on the German fiscal stimulus.

A: Yes. It compensates for the fact that many EU countries have to consolidate their budgets because of high deficits. In that respect, it is important for economic growth.

Q: We are told very often that labor markets are resilient, but do you worry this might not last?

A: All our projections confirm this resilience, and there’s a solid structural argument for it. In many European countries, retirement will outpace new entrants on the labor market because of demographic trends and changed migration dynamics. That helps prevent a higher unemployment rate, even if growth is slower than 20 years ago and slower than what was considered necessary to stabilize the unemployment rate at that time. Some predict that AI could lead to layoffs, but it’s too soon to say. We can’t exclude changes in the next five years that are more profound than we could imagine. But this is very uncertain, and my personal opinion is that we often exaggerate these effects in the short run. Labor markets adjust quickly to new developments, and all the digital changes over the last few decades have not led to a reduction in employment overall. There have been profound shifts within labor markets, but no overall reduction. By the way, talking about labor markets, the US situation is worth following closely. We currently see a weakening in the US of the labor market and labor demand. That's a reason why the Fed has started to cut. At the same time, US growth rates are pretty stable and comparatively high. It will be interesting to observe the evolution of this apparent inconsistency. Perhaps the US is already undergoing structural changes that we might eventually also see in Europe, or perhaps it's just a short-term inconsistency and we’ll see labor demand in the US recover soon.

Q: Since you mention the Federal Reserve, in all likelihood, the Fed will cut again, especially after Chair Powell is replaced by someone more to President Trump's liking. At some point that has to prompt a reaction here, because this impacts factors that enter into the ECB’s decisions, no?

A: We do not react automatically to the rate decisions of any other central banks, including the Fed. Theoretically speaking, at some stage, US rate cuts should have effects on the US economy or financial markets, and there might be spillovers to which we would need to react. But I don't see any such scenario influencing our policy considerations at the moment. For the time being, US rates are far above our rates, so there is no need to think about that yet.

Q: What about the exchange rate?

A: There has been, of course, an increase in the exchange rate and the effective exchange rate of the euro. But the exchange rate has stabilized over the last few weeks, almost months. So again, there is no need to think about monetary policy reactions solely based on the exchange rate.

Q: And if the appreciation continues, it's okay almost indefinitely as long as it’s orderly, right?

A: I don't really expect it to continue. But we have to wait and see, and it is among the many risks. If it does continue, gradual is better, since this leaves space for economic actors to react. Of course, at some stage, we would have problems in terms of competitiveness and trade with the US. But this is not a monetary policy problem per se. Later, it might show up in the GDP growth outlook, at which point it might influence our considerations. But we’re far from that at the moment.

Q: Are you hoping that the euro will become more important internationally?

A: I'm not sure I'm hoping, but we have to be prepared for it, since if US policies continue along their current path, there might be a need for the euro to become more active internationally. But I don’t at all expect the US dollar to be replaced as the world reserve currency. I’m just talking about gradual changes in terms of more widespread use of the euro as a reserve and also a transaction currency. We are prepared for this, but it’s nothing Europe has actively sought.

Q: Some observers see a disparity between the relatively hawkish tone of recent press conferences and the relatively dovish tone of the meeting accounts. Do you perceive this to be the case?

A: I haven't observed it. Obviously, governors have slightly different approaches based on different opinions and assessments. That's fine; in fact, it’s a virtue of the Governing Council. But I've now seen two ECB monetary policy meetings, and the discussions in both were fully reflected by the press conference.

Q: Speaking of hawks and doves, we were asked recently whether you would be as hawkish as your predecessor. For me the answer was no, but how would you have responded?

A: I don't see myself in either camp. I see myself as a former academic economist who worked a lot with data and places a strong emphasis on evidence. I see myself as somebody who is ready to try to convince others of the arguments I’m convinced of and who wants to find a good compromise within the Council. At some stage I may occupy a clear position on this continuum, but it's not the case that I want to see myself as being in one corner of it. I avoid comparing myself to my predecessor, who in his six years here had to take a lot of difficult decisions. In six years from now, perhaps somebody will be able to clearly position me on the hawk-dove line. But it’s important to note that the reputation you get over time can depend on the specific situations encountered.

Q: Inflation is relatively high in some places, including here in Austria, while elsewhere it's quite low. You set policy for the euro area as a whole, but does this heterogeneity make it more difficult?

A: No, but it's important to monitor these developments. It’s mostly due to the different timing of national measures introduced during the inflationary period. For instance, current Austrian inflation reflects the end of household energy subsidies. The base effect will drop out of the inflation rate by the end of this year, leaving our inflation much closer to the euro area average. And similar one-off effects show up in many countries. We'll probably have to wait another one or two years to see whether inflation dynamics in the region converge, but I would almost bet that they wind up much closer to each other again.

Q: And does that apply to growth rates as well, that you expect them to converge?

A: Yes. If you look at the last couple of quarters, growth rates were already much closer to each other. Of course, with sluggish German growth, we have a large member state with slower growth than the rest of the area. But if you look back a decade or so, Southern member states with the highest growth rates now had much lower growth then. So, this is also some catching up.

Q: And you mentioned Germany, where the car industry is in trouble. How concerning is this?

A: Germany was in a recession for quite a long time, and growth rates have not picked up very strongly. The outlook is better now, but any indication of faster German growth would help the entire euro area. The smaller countries around Germany depend quite a lot on the export-import relationship with Germany, so sluggish growth in Germany of course has an effect on them.

Q: Returning to monetary policy, let's say that we don't get any abnormal developments in the foreseeable future that would require a clear policy response. At some point nevertheless it would make sense for the ECB to consider tightening policy just to regain policy room. At what point under these normal circumstances would you think that it would be reasonable for that to happen?

A: First of all, we have policy room. We're far from the zero lower bound that everybody naturally wants to avoid after experiencing QE and its effects. But yes, if you're at the end or very close to the end of a monetary policy cycle, the zero lower bound is obviously the opposite of the direction you're heading in. We'll see when what you said is the case, but it will depend very much on the growth outlook and of course inflation. If growth picks up, that would mean more pressure on prices and then there is the right moment to react. Personally, I hope we will see more dynamic growth sooner rather than later. But we do not see any strong dynamics over our projection horizon yet.

Q: Still, do you agree it would be surprising if we got through all of 2026 without starting to tighten?

A: Not too surprising. I mean, if the inflation outlook remains similar to what we foresee and if GDP projections remain similar, then there might be a longer period of time at the current rate.

Q: Do you agree with those who say that if we get past December without doing anything, then the likelihood of cutting again starts to decrease? Or do you tend to see the possibility that the evidence for another cut will accumulate in the first quarter?

A: It's difficult to say without the updated projections and new data. As long as nothing changes in terms of the projections, then the arguments required to cut might be more demanding. I think everybody agrees that we are in a good place, so one would need a convincing argument to change policy. But there are of course lots of things that might change over the next couple of months, and March is almost half a year from now. So, who knows?

Q: You are not fond of the idea of an insurance cut, right?

A: What would such a cut insure us against, actually? The impact of 25bp in the current economic environment is rather small, and everybody knows that.

Q: A colleague of yours warned just today about financial market vulnerabilities, and of course a lot of people have noted the high valuations. How concerning is this?

A: Indeed, price-earnings ratios are high, and we see exuberance in some financial market segments. It has no direct effect on monetary policy at the moment, but it's something to watch closely. Stock markets have been quite strong, which in some respects is positive, but this also implies a certain probability for price corrections. And we don't know whether these corrections will be moderate and occur over a longer period, or be more profound and sudden.

Q: So, a last question on ECB Executive Board succession. Already in mid-2026, Vice President de Guindos is leaving. The last three ECB vice presidents all came from Southern European countries. What do you make of such geographic considerations?

A: It's perfectly legitimate for candidates to use geographic arguments, but in the end, I think for everybody it’s clear that it’s important to have somebody in the position who is qualified and experienced and can fully take on the role. And the rest is up to the European Council, which takes the decision. There might be some considerations regarding geographic composition of the Executive Board, but in my opinion, these should never be the main argument.

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