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ECB’s Holzmann says central bank’s new policy guidance was a ‘step too far’

LONDON — Another member of the European Central Bank has expressed “reservations” about the latest policy statement made by the Frankfurt-based institution, further highlighting the division within the central bank.

“I had, like Mr. Weidmann and Mr. Wunsch reservations with the proposal,” Robert Holzmann, governor of the Austrian Central Bank and a hawkish member of the ECB’s Governing Council, told CNBC’s “Street Signs Europe” Tuesday, mentioning his German and Belgian colleagues.

His words follow last week’s announcement that the ECB will pursue a “persistently accommodative” stance — meaning interest rates will remain at low levels for the foreseeable future.

The ECB said in a statement that it expects interest rates to remain at their present or lower levels until it sees inflation in line with the target of 2% “well ahead” of the end of its forecast horizon. It was seen as a dovish stance and disgruntled hawks at the bank that believe that it’s committing to stimulus for too long.

According to Holzmann, this statement went “a step too far”.

“We would have wished a different guidance, which doesn’t bind us too long in the future, in order to stay agile, and ready in case inflation requires an earlier liftoff,” he said, indicating that as a result of the new guidance rates might not change before 2025.

Speaking to CNBC last week, ECB member Pierre Wunsch, also a noted hawk, confirmed he had voted against the latest guidance on interest rates, saying he was reluctant to commit to a potential five or six-year time horizon of further stimulus. Media reports also suggested that German Central Bank Governor Jens Weidmann also voted against the new guidance.

There has always been somewhat of a divide within the ECB, between members who are keen to keep monetary stimulus and those that are more skeptical about intervention. Concerns about the future of inflation seem to be reigniting that old divide.

Consumer prices in the euro zone hit the ECB’s target of 2% in May, but fell slightly to 1.9% in June. The data has led to questions about whether higher inflation is here to stay, as this would mean monetary stimulus could be reduced.

It is “a tail risk that we cannot exclude, that inflation goes well beyond and may stay there,” Holzmann said.

The current inflation dynamics lets us expect that we will go above and then down again, but we cannot discount it,” he added.

The latest ECB projections point to a headline inflation of 1.9% by the end of the year, followed by 1.5% in 2022. The ECB’s policy mandate is to support a headline inflation of 2%.

“Our mandate breaks any forward guidance, but I think it would have been more honest to the markets to tell [them] ‘Yes, we want to stay accommodative as it is for the time being, but we stand ready to change the rate if it’s necessary’,” Holzmann added.


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