ECB’s Holzmann: I have no in-principle objection to a June rate cut


European Central Bank (ECB) policymaker Robert Holzmann said in a Reuters interview on Wednesday, “I have no in-principle objection to a June rate cut but want to see more supportive data.”

Additional quotes

Cutting rates out of sync with the Fed would diminish impact of policy easing.

Given weak productivity in Eurozone, 3.0% deposit rate may still prove too tight over longer term.

It’s possible that inflation may even do better than ECB projections.

ECB needs to stop subsidizing commercial banks and should cut interest payments on the piles of cash lenders got from the central bank on the cheap.

Market reaction

At the time of writing, EUR/USD is adding 0.08% on the day to trade at 1.0776, little affected by the above comments.

 

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

 

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