ECB’s Holzmann says further rate cuts by the Bank could slam EUR and spike inflation

Robert Holzmann is Governor of Austria’s central bank and a European Central Bank Governing Council member, billed by many pundits as the A1 hawk at the table.

Holzmann spoke in a radio interview on Saturday with public broadcaster ORF (Österreichischer Rundfunk, ‘Austrian Broadcasting’). He said further European Central Bank rate cuts in the abscence of cuts from the US Federal Reserve would have an impact (lower) on the EUR exchange rate and mean higher inflation:

“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”

On Thursday last week the ECB cut deposit rate to 3.75%, from 4%. Holzmann dissented from the rate cut:

• ECB’s Holzmann dissented on the rate cut
• ECB’s Holzmann: I was the only one against a rate cut

Holzmann blamed comments from members of the Governing Council ahead of the meeting that he felt left the Bank with no option but the cut:

• “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.”

Huh. I don’t think its going out on a limb too much to suggest that officials at the ECB are hosing down future rate cut expectations in order to limit the risk of a sell-off in the euro. Holzmann is getting the ball rolling on this.

This article was written by Eamonn Sheridan at www.forexlive.com.