ECB Governing Council member Robert Holzmann expressed concerns on Saturday about the risks of further reductions in ECB borrowing costs, particularly regarding their impact on the Euro exchange rate and inflation.
Holzmann warned, “If the original assumption of three rate cuts were to materialize, and the Federal Reserve didn’t respond, it would certainly have an impact on the exchange rate, and with it inflation.”
Holzmann was the lone dissenter against ECB’s rate cut last week but stated that the decision didn’t yet make him concerned about inflation risks.
He explained that ECB officials’ implicit commitment to a rate cut was a significant factor in last week’s decision. “There was a review of the data and a discussion about it with different points of view,” he said. “The council’s opinion was that there was no other way, also because it had been announced that such a decision would be made in June.”
