ECB's Holzmann voices caution on rates outlook

ECB's Holzmann voices caution on rates outlook


ECB's Holzmann voices caution on rates outlook

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(Reuters) - It is too early to tell whether the European Central Bank has initiated a shift towards lower borrowing costs after it cut its benchmark interest rate this week, ECB policymaker Robert Holzmann said on Saturday.

The ECB cut the rate it pays on bank deposits to 3.75% from a record 4.0% on Thursday but held back from promising any more easing after a string of disappointing wage and inflation data in recent weeks.

Holzmann, the head of Austria's central bank, was the only member of the ECB's 26-member Governing Council to oppose the rate cut. The bank's decision had been widely expected after the ECB had telegraphed its intentions ahead of time.

Going forward, the bank would be looking to avoid putting itself in any sort of bind, Holzmann told Austrian radio.

When asked whether the rate cut marked a shift towards lower borrowing costs, or was a step that did not commit the bank toward a particular direction, Holzmann was cautious.

"I think it's a step in the right direction," he said. "I hope - I don't know - that there won't be a need to raise rates again," he added, saying future decisions would depend on data.

Among factors to consider would be the rate differential between the ECB and its US counterpart, the Federal Reserve, Holzmann said in the interview.

If, as US policymakers have intimated they would this year, the Fed does not cut rates three times, that would affect exchange rates to the euro's detriment against the dollar, which could fan inflation in the single currency area, he noted.

The ECB could only declare victory on inflation once it had eased to the bank's target of 2%, he said.

"We hope we'll be there in 2026," Holzmann said. "That's what the models predict. And that's all based on the assumption that there are no further shocks."

Eurozone annual inflation accelerated to 2.6% in May from 2.4% in April, according to a flash estimate.