OeNB chief Holzmann was against ECB interest rate cut

Some euro watchdogs, who usually favor a tight monetary policy, expressed regret on Thursday that an impending interest rate cut had been signaled too clearly, four insiders told the Reuters news agency.

If this had not happened, these central bankers would have voted not to change the key rates. The European Central Bank (ECB) declined to comment on the information.

• Read more: ECB lowered key interest rate: What this means for borrowers and savers

At its interest rate meeting on Thursday, the ECB decided to cut interest rates for the first time in almost five years. It reduced the deposit rate, which is the key rate on the financial market and which banks receive for parking money with the central bank, to 3.75 percent from the previous 4.00 percent. The last time the Eurozone central bank had loosened interest rates was in September 2019. The decision was made with very broad approval – only Austria’s central bank chief Robert Holzmann was against this step, according to insiders. Before the interest rate meeting, the step down had been quite clearly announced by the ECB’s top brass. ECB Vice President Luis de Guindos even spoke of a “fait accompli” in an interview.

Incompatible?

However, a series of unfavorable economic data on wage growth and inflation recently raised some doubts about the ECB’s forecast that inflation would return to the central bank’s target of two percent by mid-2025, with only a few blips between now and then. According to insiders familiar with the discussions, around half a dozen conservative euro watchdogs noted that the latest economic data may not be compatible with a rate cut.

According to the insiders, a few even said that their final decision might have been different without the clear signal sent beforehand. With the exception of Holzmann, however, everyone agreed that backing out would be a mistake. They argued that the ECB must stand by its announcement that it would make decisions based on incoming information.

At the press conference following the interest rate decision, ECB President Christine Lagarde was very cautious about the further course of monetary policy this year. She stressed that the central bank was not committing to a specific interest rate path.