According to European Central Bank (ECB) policymaker Robert Holzmann, the primary threat to a potential interest rate cut from the ECB stems from tensions in the Middle East.
Speaking to CNBC’s Karen Tso during the International Monetary Fund Spring Meetings, Holzmann emphasized the impact of geopolitical events, particularly in the Middle East, on energy prices, citing potential disruptions such as incidents in the Strait of Hormuz.
Holzmann highlighted the importance of energy prices in Europe’s efforts to control inflation, noting that a sudden surge in oil prices would constitute a significant shock to the economy.
His sentiments echo those of fellow ECB policymaker Olli Rehn, who emphasized that the likelihood of a rate cut in June depends on inflation trends and is influenced by geopolitical risks, including tensions between Iran and Israel and the conflict between Russia and Ukraine.
In response to recent events, such as Iran’s air attack on Israel, world leaders have called for restraint, aiming to avoid further escalation of conflicts in the region.
Meanwhile, oil prices have experienced a decline over concerns about demand, despite potential disruptions to supply.
Brent crude futures with June delivery traded lower at $89.01 per barrel, while U.S. West Texas Intermediate futures with May delivery fell to $84.50 per barrel.
Holzmann, known for his cautious approach, has previously warned against hasty interest rate cuts but indicated a growing consensus within the ECB for a potential moderation of rates in June.
ECB President Christine Lagarde also hinted at a possible rate reduction, provided there are no major surprises.
Lagarde emphasized the importance of monitoring the disinflationary process and expressed confidence that, barring unexpected developments, the ECB would move towards a more moderate monetary policy.
The ECB has left its policy unchanged for the fifth consecutive meeting but signaled openness to reducing rates if inflationary pressures continue to ease.
Speculation about rate cuts by the ECB contrasts with reduced expectations for rate reductions by the Federal Reserve, with traders assigning only a 20% likelihood of a Fed rate cut in June amidst persistent inflationary pressures.
