ECB’s Holzmann Says Inflation’s Stickiness Underestimated: Pulso
(Bloomberg) -- European Central Bank Governing Council member Robert Holzmann warned that inflation’s tenacity is being miscalculated, according to an interview with Chile’s LT Pulso.
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“I truly believe that it’s being underestimated how sticky inflation is,” he was cited as saying.
The hawkish Austrian central banker was the sole dissenter against the ECB’s June interest-rate cut, something Holzman has since justified by saying that a data-dependent policy stance must adhere to signals from incoming economic data.
Holzmann visited Santiago this week to attend a discussion on monetary policy at the Catholic University of Chile.
“We have two main possibilities for movement and errors: we move too soon, or we move too late,” Holzmann told LT Pulso. “And the question is what risks are involved, and my feeling is that moving too early creates greater risks than moving too late.”
Lowering interest rates too slowly “can create a temporary somewhat lower growth rate,” Holzmann said. In contrast, “if you move too soon and then create new inflation, then you’ll probably have to raise the rate again,” he said.
“This generates much more noise and negative effects on the system,” he added.
Holzmann was also asked about the danger of diverging with the US Federal Reserve — which is only expected to start lowering rates later this year.
“A 0.25% bigger differential with respect to the Fed rate doesn’t create any problem,” he said, echoing earlier comments. “But if we assume that we could have three more moves before the Fed moves, this creates a much greater distance between us and the US, and then it is very likely to have effects on the exchange rate and, as a result, on the inflation rate.”
For full interview, click here
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