ECB Must Stay Vigilant and Prepare for Further Rate Hikes, Says Holzmann

VIENNA (Reuters) – The European Central Bank (ECB) needs to stay alert regarding inflation and be ready to increase interest rates again if necessary, according to policymaker Robert Holzmann, who cautioned against any cuts in the near term.

During its most recent meeting on October 26, the ECB held interest rates steady, concluding an extraordinary sequence of 10 consecutive rate hikes, and emphasized that discussions of potential cuts were premature.

"I definitely belong to those that think we should be very careful, that we should stand ready again to hike if needed, and certainly don’t declare victory too early on," Holzmann stated to reporters at a conference, stressing the importance of remaining vigilant.

Since July 2022, the ECB has raised rates by a total of 4.5 percentage points to address surging price growth, but it has paused as historically high borrowing costs begin to affect the economy.

Financial markets are increasingly anticipating that the ECB may be the first major central bank to lower rates, aiming to support a eurozone economy facing recession, in stark contrast to the strong performance of the United States.

Holzmann, however, aimed to temper these expectations.

"Don’t expect any reduction of the rates soon. Eventually it will happen, but for the time being I don’t see it," he remarked, as he also serves as the head of the Austrian National Bank.

When asked about his concerns regarding growth forecasts, he responded, "Not really, because you have to consider that we increased rates by 450 basis points in Europe and despite this significant rise, we still have stagflation, so it could be much, much worse. Given this, we are in pretty good shape."