(Bloomberg) -- Austria’s new central-bank governor said that the European Central Bank’s latest easing package was possibly a mistake and can be changed after incoming President Christine Lagarde takes over from Mario Draghi.
“As things change -- also this forward guidance and the policy may change -- not tomorrow, not the day after tomorrow, but I wouldn’t think it’s there for the next decades,” Robert Holzmann said in an interview with Bloomberg Television on Friday in Helsinki. Lagarde is not “a weak person who’ll say I’m locked in one or the other way.”
Holzmann participated in his first Governing Council meeting this week after taking over from his outspoken predecessor Ewald Nowotny. He described Thursday’s debate in Frankfurt as “very intense but also very constructive.”
Speaking out in tandem with Holzmann was Dutch governor Klaas Knot. In an unusual statement on Friday, he called the decision to launch the stimulus that includes a new bond-buying program disproportionate to economic conditions, adding that there are “sound reasons to doubt its effectiveness.” He also pointed to increasing signs of scarcity of low-risk assets and excessive risk-taking in the housing market.
Strong Opposition
Despite unprecedented opposition from within the council that included officials from France, Germany, the Netherlands, Austria and Estonia, Draghi pushed through a restart of quantitative easing. Policy makers also decided to cut their deposit rate further below zero, agreed more generous conditions for long-term loans to banks, and left open the possibility for doing more.
Asked if this monetary push was a mistake, Holzmann said “this idea crossed the mind of some people” in the council. “It definitely crossed my mind,” he added.
“I hope we’re not locked in,” he said. “I hope there’s room that we discuss it in the future.”
With Lagarde set to take over from Draghi when his term ends in October, Holzmann sees room for far-reaching changes in the way the ECB conducts monetary policy. One key issue under discussion is how the central bank defines its inflation goal, currently set at just under 2%.
“It may be that the 2% is at the moment out of reach, and 1.5% also signifies stable prices,” he said. “So there is no need to try to use all the power you have to move up to 2% if the costs are too high.”
The Austrian governor says it’s time for the ECB to reverse its negative-rate policy, after missing the opportunity to do so during the economic upswing of 2017.
“A number of members of the council had the thinking about it that moving further in the negative territory is not the way to go,” Holzmann said. “It’s not sustainable. It was the way at the time when we had a liquidity issue, but it can’t be something which continues very long.”
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