ECB May Not Lower Borrowing Costs Amid Lingering Inflation Risks

Governing Council Member Robert Holzmann has cast doubt on the European Central Bank’s (ECB) plans to lower borrowing costs this year, citing persistent inflation risks. In an interview with Frankfurter Allgemeine Zeitung, Holzmann, who also heads Austria’s central bank, suggested that an interest-rate cut may not materialize until the very end of the year, if at all.

The ECB’s policymakers are currently in a holding pattern, awaiting additional data to assess whether inflation and wage developments warrant a shift in interest rates. While many officials have hinted at the possibility of easing monetary policy this year, there remains ambiguity regarding the timing of such measures.

Despite speculation among investors that a rate cut could occur as early as April, Holzmann indicated a leaning towards a later timeframe, with June appearing more probable. He stressed the importance of ensuring that inflation is genuinely under control before implementing rate cuts, emphasizing the significance of risk assessment in the decision-making process.

Holzmann cautioned against expecting companies to absorb higher wages through their profits, predicting that wage increases would inevitably contribute to inflationary pressures. He attributed the recent slowdown in inflation to temporary factors such as energy price fluctuations, cautioning against interpreting it as a definitive indication of progress towards the ECB’s 2% target.

Highlighting geopolitical risks such as tensions in the Red Sea region, Holzmann advocated for prudence in monetary policy decisions. He emphasized the challenges associated with reversing interest rate cuts in the event of unexpected inflationary developments, citing potential repercussions on market confidence.

In essence, Holzmann’s remarks underscore the ECB’s cautious approach to monetary policy amid lingering uncertainties surrounding inflation and economic stability. As the central bank navigates these challenges, careful deliberation and data-driven assessments will remain paramount in shaping future policy actions.


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