ECB’s Holzmann Cautions Against Rate Cuts Amid Lingering Inflation Threats


Robert Holzmann, a member of the European Central Bank’s Governing Council, has issued a warning that the ECB is unlikely to implement interest rate cuts in 2024, primarily due to persistent threats posed by lingering inflation. Holzmann expressed concerns about the euro-zone economy, stating that it might fall short of officials’ optimism when fourth-quarter results are released. He made these remarks during an interview at the World Economic Forum in Davos, Switzerland.

Holzmann emphasized the increased geopolitical threats, particularly citing the situation in the Middle East, which could disrupt supply chains and energy markets, exerting pressure on prices that the ECB cannot overlook. He noted that the recent actions by the Houthis may be an indication of broader issues, potentially impacting the Suez Canal and driving up prices. In light of these challenges, he cautioned against expecting any rate cuts in 2024.

While inflation approached the ECB’s 2% target in late 2023, speculation arose about a potential reversal of the central bank’s monetary tightening campaign. Traders have speculated on six quarter-point cuts starting in April, but Holzmann, echoing sentiments from other ECB officials, emphasized that it is “much too early” to consider reducing borrowing costs.

Holzmann expressed concern about discussing a specific date for rate cuts, stating that it could trigger dynamics beyond their control. He emphasized the uncertainty surrounding inflation development and stressed the importance of data-dependent decisions. Bundesbank President Joachim Nagel also supported this view, indicating that it is premature to discuss monetary easing, with no anticipated movement before the summer.

Despite a weakening economy, highlighted by Germany’s reported contraction in the fourth quarter, Holzmann suggested that the region might not experience a “real recession” but could be susceptible to one triggered by external factors. He pointed to potential impacts on industries and services, especially if geopolitical risks lead to increases in oil and gas prices.

The Governing Council’s assessment has become “mildly more skeptical” in recent months, according to Holzmann, and he anticipates a slightly less optimistic outlook following the release of fourth-quarter data on January 30. While he doesn’t foresee a definite recession, he acknowledged the possibility of external effects, such as geopolitical risks affecting energy prices, materializing.

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