June rate cut ‘possible’, but ECB can’t ignore Fed, says Holzmann

by Francois Murphy and Balazs Koranyi

VIENNA (Reuters) – The European Central Bank (ECB) could start cutting rates as early as June as inflation could fall faster than expected, but its action will be constrained by that of the Federal Reserve (Fed), said Wednesday the governor of the Austrian central bank, Robert Holzmann.

“I don’t have April in mind (for a rate cut). We will have more information in June,” the ECB Governing Council member told Reuters.

“I am not opposed, in principle, to a rate cut in June but I first want to see the data and I want to remain dependent on the data,” specifies the head of monetary policy, considered by some observers as the member the most conservative member of the ECB Council.

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However, if the Fed does not cut rates in June, the market reaction to the rate differential between the two central banks will offset the impact of an ECB rate cut.

“If the data argues for a cut in June, a week before the Fed makes its decision, then it is likely that we will cut rates and hope that the Fed follows suit. If not, the economic impact of our rate cut will undoubtedly be lower,” explains the head of monetary policy.


Robert Holzmann’s change in tone was driven by slowing inflation and a weakening European economy, with the official stressing that commodity prices had had little impact and that goods prices were falling thanks to exports. Chinese.

The governor also qualifies the risks on salaries. “Wages are of course a risk for inflation, but we have also noted that if the pricing power of companies decreases, they must settle for lower prices,” underlines Robert Holzmann.

Ultimately, the governor estimates that inflation at 2% and productivity growth of 1% will justify rates at 3%, if European productivity recovers.

“If the productivity gap with the United States remains as large as currently, even a rate of 3% will be too restrictive,” notes the governor.


While excess liquidity held by European banks and placed at the ECB reaches 3.2 trillion euros, Robert Holzmann calls for a review of the framework within which these reserves are remunerated by the ECB.

With a rate of 4%, these liquidity reserves pushed the central bank’s accounts into the red.

“That the current structure weighs on the accounts of central banks is not acceptable. We cannot be in deficit indefinitely,” explains the governor.

The ECB decided last year that 1% of excess liquidity would not be remunerated, and Robert Holzmann is calling for increasing this share to between 5% and 10%.

(Report by Balazs Koranyi, French version Corentin Chappron, edited by Zhifan Liu)

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