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Robert Holzmann, president of the Austrian central bank and a European Central Bank hawk, said he believes rate-setters will need to cut borrowing costs again by the end of the year.
Holtzmann, the lone dissenter in the Governing Council's decision to cut rates in June, supported Thursday's 0.25 percentage point cut, which left the central bank's deposit rate unchanged at 3.5 percent.
“Monetary policy is on a good track now,” Holtzman told the Financial Times. “We are [easing] The trajectory has changed and headline inflation continues to decline.”
Barring a shock such as rising energy prices, there may be “room” for a further quarter-percentage point cut “in December,” he said. Borrowing costs could be cut further to around 2.5 percent by mid-2025, he added.
Holzmann, who is due to leave the central bank in August next year, stressed that the ECB needs to remain vigilant and closely monitor services inflation, which remains high at 4.2 percent.
But he said inflation was a much smaller concern than when the ECB first cut rates in June.
At the time, he noted rising inflation and growing uncertainty. “This uncertainty has become significantly smaller over the past two and a half months,” he said, adding that economic activity seemed increasingly in line with the ECB's forecasts.
The ECB lowered its growth forecast on Thursday.
Headline inflation in the euro zone fell to 2.2% in August, down from 2.6% the previous month and approaching the ECB's 2% target.
“I'm not opposed to lowering interest rates per se, only when I don't think the timing is right,” Holtzman said.
The president warned that the ECB faces a communications dilemma in the coming months as headline inflation is expected to temporarily pick up again.
“This would be a statistical artifact caused by base effects,” he said, adding that rate-setters should see through temporary fluctuations.
In its updated forecast on Thursday, the ECB saw inflation rising “slightly” between October and December before falling to 2.2% in 2025 and 1.9% in 2026.
“Properly accounting for a temporary increase in core inflation will be a challenge,” Holtzman said. “But it is necessary and failing to do so could undermine credibility in the central bank.”
He argued that October may not be the right time for another rate cut because the ECB has limited additional data on economic trends, a message that echoes comments made by ECB President Christine Lagarde on Thursday.
Holtzman argued that 2.5% is probably close to the so-called neutral rate, a level of monetary policy that neither stimulates nor slows the economy.
