Robert Holzmann, a member of the six-member board of the European Central Bank (ECB), warned on Monday that the central bank may not cut interest rates at all this year, despite the risk of recession in the euro area.
In an interview with Bloomberg during the World Economic Forum (WEF) in Davos, Holzmann said geopolitical tensions could cause energy carrier prices to rise again.
“The geopolitical threat has increased. I think what we are the Houthis [mässuliste] seen from the United States is not over yet, and could be followed by something much larger that hits the Suez Canal and raises prices there,” said Holzmann, who is also governor of the Austrian central bank.
“We should not count on a rate cut in 2024 at all,” he added.
Holzmann echoed warnings from ECB President Christine Lagarde and ECB chief economist Philip Lane that it is too early to talk about a rate cut and it is not possible to set a specific date.
“Based on the knowledge we have now, this would not be the case [intressimäärade langetamise kuupäeva paikapanek] honest, because we don’t know how inflation will develop,” he said.
Inflation in the euro area fell close to the ECB’s 2% target at the end of last year, before rising again in December. The ECB expects inflation to fall to 2% in the second half of 2025, but core inflation, which excludes food and energy prices, will remain above target in 2026.
Currently, interest rates in the euro area are the highest in the history of the euro. For example, the interest rate for a permanent deposit option is 4%. If investors expect a lowering of interest rates as early as March this year, according to economists’ forecasts, the first reduction in interest rates will occur in June.
German central bank President Joachim Nagel also told Bloomberg TV on Monday that it was premature to discuss cutting interest rates.
“Maybe we can wait until the summer or something, but I’m not going to speculate. It’s too early to talk about lowering interest rates,” Nagel said, adding that the ECB will base its decisions on incoming data.
Holzmann, for his part, underlined that inflationary pressure will remain high, especially due to the collective agreements recently signed in Germany, Austria and the Netherlands, which according to Holzmann offer employees rather high salary increases.
Inflationary and wage pressures are high despite the weakness of the Eurozone economy. In 2023, for example, the German economy shrank by 0.3%.
Eurostat will publish fourth-quarter economic indicators for the euro area on January 30, and Holzmann warns that the data could indicate a slight economic recession due to external factors.
“If oil and gas prices were to rise due to geopolitical risks, this would affect many sectors of the economy that have already suffered. Perhaps even the service sector. In that case, a recession would not be unlikely,” Holzmann said talking about the future prospects of the Eurozone. .
2024-01-15 13:57:00
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