ECB’s Holzmann Comments on Rate Cut Debate

ECB Governing Council member Robert Holzmann has highlighted the growing complexity of the central bank’s interest rate decision. While acknowledging increasing risks of undershooting the ECB’s 2% inflation target, he emphasized that current inflation figures present a mixed picture, making policy adjustments challenging.

Holzmann stated that the risk of undershooting the target alone isn’t sufficient justification for a rate cut. With core inflation at 2.7%, he suggests the ECB’s current policy stance is already approaching neutral or even slightly expansionary territory. He noted that below 2.5% inflation, the case for a non-restrictive policy would be stronger.

Holzmann emphasized the uncertainty surrounding future rate moves, stating that a cut is possible, but so is maintaining the current stance. Critically, he added that the case for another rate cut is becoming increasingly difficult, both now and beyond March.

Holzmann also expressed skepticism about services inflation declining significantly. These comments suggest a growing internal debate within the ECB, balancing the risks of undershooting the inflation target against other economic considerations. The ECB’s upcoming decisions will depend on how these competing factors are weighed.