Timing too early: Governor of the National Bank is against interest rate cuts by the ECB

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The monetary authorities of the European Central Bank cut the key interest rate on Thursday for the first time since 2016 – by 0.25 percentage points to 4.25 percent. Robert Holzmann, the governor of the Austrian National Bank (OeNB), has little to gain from this move.

Holzmann said on Friday that he wanted to “send a signal” with his position, because the timing of the interest rate cut was too early. “My interpretation is that inflation has not yet been won,” the National Bank governor said.

Inflation forecast revised upwards
Holzmann referred to the inflation forecast for the eurozone, which was revised upwards on Thursday. The ECB now expects inflation of 2.5 percent in 2024 (previously 2.3 percent) and 2.2 percent for 2025 (previously 2 percent).

Some euro watchdogs, who typically favor tight monetary policy, expressed regret on Thursday that an impending rate cut had been signaled too clearly, four insiders told Reuters.

Holzmann did not comment on whether and when further interest rate cuts by the ECB could take place. No new inflation forecast data will be available in July. “We will see the September data.”

The ECB lowers its key interest rate for the first time in eight years
For the first time since the major inflation wave, the ECB lowered its policy interest rate by 0.25 percentage points to 4.25 percent on Thursday. The move is seen as historic because it is the first interest rate cut since March 2016. The ECB is therefore faster than the US Federal Reserve with its interest rate turnaround.

Due to the uncertain price developments in the euro area, ECB director Isabel Schnabel cannot immediately signal further interest rate cuts after her first downward movement. “However, the outlook for future inflation developments is still too uncertain to sustain the prospect of further rate hikes,” Schnabel said at an event in Berlin on Friday, according to the text of the speech.

Source: Krone

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