It’s not guaranteed that the European Central Bank will lower borrowing costs this year as inflation risks persist, according to Governing Council Member Robert Holzmann.
“There is a certain chance that there will be no interest-rate cut at all this year or only at the very end of the year,” Holzmann, who also heads Austria’s central bank, said in an interview with Frankfurter Allgemeine Zeitung published Thursday.
ECB policymakers are in a holding pattern while they wait for additional data to see if inflation and wage developments allow them to start cutting rates. Most officials have opened the door for easing this year, without giving clear guidance on the timing.
While some investors are betting such a move will happen as early as April, most officials appear to be leaning more toward June.
Holzmann cautioned that the ECB needs to be sure that inflation has really been defeated before cutting rates.
“The risk assessment also plays an important role,” he said. “There is no green light yet.”
The Austrian governor doesn’t expect companies to absorb higher pay through their profits, and predicted that wage increases “will be reflected in inflation figures sooner or later.”
Holzmann highlighted that the recent slowdown in inflation to 2.8% is due to special factors such as base effects in energy prices, and shouldn’t be taken as a definitive signal of heading toward the ECB’s 2% target. He cited geopolitical risks such as current Red Sea tensions as grounds for caution.
“It is easier to cut interest rates more quickly if inflation falls faster than expected than to raise them again immediately after a rate cut if there is a setback,” Holzmann said. “The loss of confidence would be very high.”
He cited an International Monetary Fund study of 100 prior inflation shocks that showed countries around the world struggling to bring consumer prices over several years.
“In the past, it has been shown time and again that the fight against inflation and the time it takes are often underestimated,” Holzmann said.