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LONDON – Another member of the European Central Bank expressed “reservations” over the latest political statement made by the Frankfurt-based institution, further highlighting the division within the central bank.
“I, like Mr Weidmann and Mr Wunsch, had reservations about the proposal,” Robert Holzmann, Austrian Central Bank governor and hawkish member of the ECB’s Governing Council, told CNBC’s “Street Signs Europe” on Tuesday. , mentioning his Belgian colleagues.
His remarks follow last week’s announcement that the ECB will pursue an “always accommodating” stance, meaning that interest rates will remain at low levels for the foreseeable future.
The ECB said in a statement that it expects interest rates to stay at their current levels or below until it sees inflation in line with the 2% target “well. before “the end of its forecast horizon. This has been seen as an accommodating stance and disgruntled hawks for the bank who think it engages in the stimulus for too long.
According to Holzmann, this statement went “a step too far”.
“We would have liked a different direction, which does not bind us too long in the future, in order to remain nimble and ready in case inflation requires an earlier take-off,” he said, indicating that Following the new orientation, rates may not change until 2025.
Speaking to CNBC last week, ECB member Pierre Wunsch, also a notorious hawk, confirmed he had voted against the latest interest rate guidance, saying he was reluctant to commit over a potential horizon of five or six years, new stimulus measures. The media also suggested that German central bank governor Jens Weidmann also voted against the new guidelines.
There has always been a certain divide within the ECB, between members keen to maintain monetary stimulus and those who are more skeptical of intervention. Concerns about the future of inflation seem to reignite this old division.
Consumer prices in the eurozone hit the ECB’s 2% target in May, but edged down to 1.9% in June. The data has raised questions about whether higher inflation is here to stay, as that would mean monetary stimulus may be reduced.
It is “an extreme risk that we cannot rule out, that inflation will go way beyond and may stay there,” said Holzmann.
“The current dynamics of inflation lead us to assume that we will go up and then down again, but we cannot ignore it, ”he added.
The latest ECB projections point to headline inflation of 1.9% by the end of the year, followed by 1.5% in 2022. The ECB’s political mandate is to support headline inflation of 2%.
“Our mandate shatters any forecast, but I think it would have been more honest with the markets to say [them] “Yes, we want to remain accommodating as is the case at the moment, but we are ready to change the rate if necessary,” “added Holzmann.
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