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Robert Holzmann, the chief of Austria’s central bank, expressed on Thursday that interest rates in the euro zone should remain steady until there is greater clarity regarding U.S. tariffs and the European Union’s counteractions. He emphasized the unprecedented uncertainty surrounding these issues, stating, “We have not seen this uncertainty now for years.” Holzmann’s remarks came during an interview with CNBC’s Carolin Roth at the IMF World Bank Spring Meetings, where he indicated that ongoing uncertainty might necessitate caution in future monetary policy decisions.
Holzmann is recognized as one of the more hawkish members of the European Central Bank (ECB), advocating for a measured approach to easing monetary policy even as inflation decreases. The ECB’s Governing Council recently voted unanimously to lower rates by a quarter percentage point at its April meeting, marking the seventh reduction in the current cycle. However, Holzmann affirmed that he approached this decision with caution, underlining the need to wait for more detailed economic data.
He conveyed that while there is “broad consensus” on the necessity of rate cuts, there exist nuances of disagreement among members. Holzmann elaborated on the complex dynamics surrounding tariff countermeasures, indicating that their impact on prices remains uncertain. He stated, “My assessment is that at this time, it wasn’t clear yet to what extent [tariff] countermeasures were being taken,” noting that imposed tariffs could lead to increased prices in Europe, whereas a lack of countermeasures might exert downward pressure.
Tariff Policy Implications for European Economy
Under the administration of President Donald Trump, the EU faces substantial tariffs, including a blanket 20% levy on its exports to the U.S. and various tariffs on aluminum, steel, and automotive products. The situation intensified when Trump announced on April 9 a 90-day suspension of the universal tariffs, prompting the EU to halt its planned countermeasures pending further negotiations.
Holzmann highlighted the uncertainty surrounding pricing and rate movements due to evolving political decisions regarding tariffs. He underscored the importance of awaiting specific data before forming a concrete policy stance, stating, “This high uncertainty, what we currently have, you can find everywhere,” touching on its impact on growth and financial market indicators.
In a previous discussion with CNBC, Christine Lagarde, the president of the European Central Bank, noted that monetary policy had effectively contributed to the disinflation process in the euro zone, which she described as “nearing completion.” She emphasized the necessity of closely monitoring data, indicating that the ECB would remain highly responsive to new information.
Market projections as of Thursday hinted at expectations for another 25-basis-point cut at the ECB’s upcoming meeting in June, potentially bringing the key rate down to 2% with another reduction anticipated before the end of the year. Holzmann remarked that while additional cuts may occur, the final number remains uncertain.
Knot’s Perspective on Interest Rates
Klaas Knot, another ECB member identified as a hawkish voice, stated during the same broadcast that he remains open-minded regarding interest rates for the June meeting, describing it as “way too early” to decide. His stance depends heavily on forthcoming economic projections from the ECB, particularly concerning the medium-term inflation outlook.
Knot pointed out that the current economic uncertainty stemming from U.S. tariff policies is exerting a significant negative impact on growth. He compared the uncertainty to “a tax without revenue,” highlighting its adverse effects. While short-term inflation may experience downward pressure, Knot noted that the medium-term outlook remains murky, with potential retaliatory measures and disruptions in global supply chains possibly triggering inflationary trends in a broader context.
In light of recent shifts in fiscal policy within Europe, including Germany’s plans for increased defense spending and a substantial infrastructure investment fund, Knot asserted that the ECB is in a balanced position with interest rates neither overly restrictive nor stimulative. He expressed that a clearer understanding of the medium-term effects on inflation will guide future rate considerations.
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