According to Holzmann, who is known as a supporter of aggressive monetary policy, it is premature to talk about interest rate cuts. In the market, however, expectations about the development of interest rates are different.
of Austria central bank governor and member of the Council of the European Central Bank (ECB). Robert Holzmann warns that there is no guarantee that the ECB will start interest rate cuts next year.
Holzmann, who became known as a supporter of aggressive monetary policy, told the financial news agency Bloomberg's according to that it is premature to talk about interest bills.
“Even though the ECB has an unprecedented series of ten consecutive interest rate hikes behind it, there is no guarantee of interest rate cuts for 2024,” Holzmann said, according to Bloomberg.
“The normalization of monetary policy is already showing its effect on slowing inflation, but it would still be premature to think about interest rate cuts.”
ECB decided earlier in December keeps its policy rate unchanged for the second time in a row, and gave no hints about the start of interest rate cuts. Although inflation has slowed considerably in recent months, according to the ECB, it is likely to accelerate temporarily in the near future.
According to Holzmann, inflation in the euro area will probably reach the central bank's two percent target in the next two years, although achieving it will be “challenging”.
After the interest rate meeting in December, also the governor of the central bank Christine Lagarde said that the ECB is not yet satisfied with the slowdown in inflation and that interest rate cuts were not even discussed at the meeting. Similar message repeated after the meeting, also a member of the Council, Governor of the Central Bank of Estonia Madis Müller.
“There is no reason to think about increasing or decreasing the policy rate in the near future,” Müller said.
On the market however, the message of the central bank decision-makers has not been taken into account. This is indicated, for example, by Wednesday's events in the interest rate market, when the difference between the 12-month and three-month Euribor rates became historically large.
The euribor for the year settled at 3.554 percent. At the same time, the shorter three-month market rate was quoted at 3.925 percent. On Wednesday, the interest rate gap was 0.371 percentage points. The previous record was from November 2001, when the difference was 0.356 percentage points.
On Thursday, the difference narrowed slightly, when the three-month euribor was quoted at 2.893 percent and the one-year euribor continued to fall and settled at 3.536 percent. The interest rate difference thus narrowed to 0.357 percentage points.
However, the widened gap indicates that the market believes that the ECB will soon start easing its monetary policy. That would mean that the Euribor, which regulates the interest rate for mortgage borrowers, would also decrease. The 12-month euribor, in particular, has already fallen quickly, far from its peak at the end of last September. The rapid decline may continue if the market is to be believed.
The behavior of interest rate derivatives predicting the future development of Euribor also speaks to the fact that the market does not trust the central bank.
On Wednesday, for example, the 12-month Euribor was estimated to drop to around 2.2 percent in a year's time. Just a month ago, the one-year Euribor was estimated to be over three percent at the end of November 2024. Expectations regarding the three-month Euribor have also developed in the same direction.
However, expectations regarding the development of interest rates should be treated with caution, as estimates regarding interest rate developments have often proven to be incorrect in recent years.
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