Doing too little is still bigger risk for ECB than doing too much: Holzmann

Inflation in the euro area remains far too high so the risk of the European Central Bank not raising interest rates high enough is still a bigger than that of lifting them too much, Austrian central bank chief Robert Holzmann said on Monday.

The ECB lifted its deposit rate to 2.5 per cent on Thursday and promised a 50 basis point rate hike in March, all in the hope that higher borrowing costs would hold back consumption enough to arrest runaway inflation.

“The risk of over-tightening seems dwarfed by the risk of doing too little,” Holzmann, an outspoken conservative, told a conference. “Our monetary policy decisions must continue to show ‘teeth’ until we see a credible convergence to our target that is also felt by the wider public.”

Policymakers speaking on and off record since Thursday’s policy meeting said that the March rate hike was almost certain to be followed up by another increase in May, though the size of that increase remains open.