24.04.2025

The Debate on Interest Rate Cuts in the Eurozone: Holzmann’s Wait-and-See Stance

The current debate on interest rate cuts in the Eurozone is significantly shaped by the stance of ECB Governing Council member Robert Holzmann. The Austrian central bank chief advocates a wait-and-see approach until more clarity emerges regarding the impact of US tariffs and European countermeasures.

Holzmann’s Argumentation

Robert Holzmann emphasizes the dependence on trade data: Before any monetary policy easing takes place, the economic consequences of the US-Europe trade conflict should be awaited. Holzmann currently sees no urgency for interest rate cuts and points to unresolved uncertainties, including potential second rounds of wage negotiations and their inflation-related effects. While Holzmann expresses a clear preference for a pause in interest rates, he shows flexibility should the economic data change, which would justify a cut.

Context: Internal ECB Tensions

Within the ECB Directorate, tensions exist: Proponents of quick cuts, such as François Villeroy de Galhau from France, argue with a solid disinflation path and dampening exchange rate effects due to the strong euro. Since June 2024, the ECB has reduced the deposit rate in six steps by a total of 1.5 percentage points to 2.5%, with the last cut in March 2025.

Current Market Expectations

Despite Holzmann’s resistance, analysts anticipate further steps: A 25 basis point cut on April 17 is considered the baseline forecast, with initial speculation even suggesting a 50-point cut (‘XL-Cut’) amidst heightened trade risks. Société Générale forecasts additional cuts in June/July 2025, potentially down to a 1.5% base rate by the end of summer if the trade war escalates. The decision-making process will be significantly influenced by the updated economic projections available on the meeting day, especially regarding whether US tariffs will burden Eurozone growth more than previously assumed.