ECB’s Holzmann: Next ECB rate cut could be longer in coming
The European Central Bank (ECB) Governing Council member Robert Holzmann said on Saturday that the next interest rate cut by the ECB could be longer in coming after a recent uptick in inflation, per Reuters.
Key quotes
“It could be the case that we take more time before lowering rates again,”
“It’s true, some energy prices are trending upwards again. But there are also other scenarios for how inflation could return, such as a stronger depreciation of the euro.”
“I don’t see rate increases at the moment.”
“One probable scenario is that Trump’s tariffs lead to a slowdown in growth overall, but also create inflationary pressure,”
“How strong the effect will be depends crucially on whether and to what extent the dollar appreciates and the euro weakens.”
Market reaction
At the press time, the EUR/USD pair was up 0.03% on the day to trade at 1.0428.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
