European Central Bank Hawkish Committee Member Holzmann: Rate cut in January is not set in stone, the fight against inflation is not yet over.

In an interview, European Central Bank Governing Council member Robert Holzmann said that the interest rate cut in January is "not a foregone conclusion for me" and reiterated his previous views on the possible outcome of the meeting next week. "Cutting interest rates when inflation rises faster than expected, even temporarily, carries risks to credibility," Holzmann said. With the current economic downturn in the Eurozone and inflation rates far below the peak in 2022, the market widely expects the European Central Bank to cut interest rates by 25 basis points at the January meeting, which would be the fifth rate cut since June 2024. However, Holzmann cautioned that the ECB's decision is data-dependent, and the latest inflation data in December was well above 2%, likely to remain at this level in January. "I will participate in the discussion with an open mind about the interest rate cut," Holzmann said, "for me, cutting interest rates is not a foregone conclusion." More broadly, Holzmann's views suggest that he does not agree with several other colleagues, including ECB Vice President Luis de Guindos and French Central Bank Governor Francois Villeroy de Galhau, who believe that the fight against inflation has essentially ended. The policy hawk said that if there is any difference, it is that he is now "more skeptical" that inflation will stabilize near the ECB's 2% target by the end of the year. Since the policy decision made in December last year, Holzmann pointed out unexpected changes, such as colder weather, Ukraine stopping the transit of Russian gas, and the risk of persistently high energy prices leading to a faster decline in gas reserves than expected. Furthermore, Holzmann noted that the decline in the euro exchange rate is both a blessing and a curse, as it may mitigate the impact of potential U.S. tariffs but also raise import prices, including energy. Since the beginning of the year, crude oil prices have also risen, reaching their highest level since August last year last Wednesday. Therefore, Holzmann said that he disagrees with the widespread expectation of steady, periodic interest rate cuts by the ECB in the first half of this year. He explained, "If you say that our current situation poses no threat to the anti-inflation path, then you can think so. But if you consider the persistent inflation concerns, the answer is different."