Yahoo Finance ECB Divergence From Fed Would Fuel Inflation, Holzmann Says
(Bloomberg) -- Further reductions of European Central Bank borrowing costs may risk a stronger impact on the euro exchange rate and inflation, according to Governing Council member Robert Holzmann.
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“If the original assumption of three rate cuts were to materialize, and the Federal Reserve didn’t respond, it would certainly have an impact on the exchange rate, and with it inflation,” Holzmann told public broadcaster ORF in a radio interview aired Saturday.
He said the ECB’s first rate move on Thursday didn’t yet make him concerned on the matter.
Austria’s central bank chief was the only dissenter against this week’s decision to cut euro-zone rates, justifying his objection by stressing that data-driven decisions should be guided by numbers. The fact that the reduction was accompanied by higher ECB inflation forecasts for 2024 and 2025 also left markets guessing at what policymakers will do next.
Holzmann, typically seen as the Governing Council’s top hawk, said ECB officials’ de facto precommitment to a move was one of the reasons for the cut.
“There was a review of the data and a discussion about it with different points of view,” he said. “The council’s opinion was that there was no other way, also because it had been announced that such a decision would be made in June.”
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