The European Central Bank (ECB) may not need to raise interest rates in the Eurozone at its upcoming meetings if inflation eases due to reduced liquidity amid turmoil in the banking sector, stated the Austrian governor.
Two weeks ago, Robert Holzmann, head of the Austrian central bank and a member of the ECB’s governing council, told the German daily Handelsblatt that the ECB should raise rates by half a percentage point at four consecutive meetings because inflation is not easing, Reuters recalls.
At last week’s meeting, the bank raised them by half a percentage point, as it had announced.
On Monday, the Austrian governor responded to a question from ORF TV about whether he still believes the ECB should continue raising interest rates, given the turmoil in the banking sector, saying, ‘I would not rule out that possibility, but I would not say that (the ECB) will necessarily do it.’
ECB President Christine Lagarde stated on Monday that turmoil in financial markets could do part of the ECB’s job if it dampens demand and inflation.
She likely referred to the fact that both raising interest rates and nervousness in the banking sector usually deter banks from lending and ‘cool’ economic activity, speculates Reuters.
The Austrian governor also emphasizes that since his interview with Handelsblatt, liquidity in the financial system has decreased, alluding to the recent drop in bank stock prices due to fears of a new banking crisis.
– ‘Our job is to fight inflation,’ Holzmann said, adding that the central bank will no longer need to raise interest rates or will be able to raise them in phases if inflation eases or prices even fall due to reduced liquidity.
