(Bloomberg) -- The European Central Bank will most likely lower interest rates by another 25 basis points this year even as upside inflation risks linger, said Governing Council member Robert Holzmann.
At the same time, neither a larger step nor a pause can be excluded, the Austrian central-bank chief said in an interview in Washington, where he is attending the annual meetings of the International Monetary Fund.
“I’d say a quarter-point step is probable in December,” Holzmann said. “A bigger half-point cut is unlikely though not impossible. But we might also conclude that preemptively cutting in October might have been sufficient to take a break in December.”
Holzmann, one of the most hawkish ECB rate setters, spoke less than a week after officials reduced borrowing costs for a third time since June. Economists and traders are counting on another move in December, with the latter increasingly betting on a steeper cut.
While a 50 basis-point move has been floated by Portugal’s Mario Centeno, most policymakers haven’t committed to specifics, acknowledging only that rates must come down further.
Holzmann said that he doesn’t “have a problem getting to neutral faster if inflation data allow.”
Inflation slowed more than anticipated in September — easing to 1.7% — and while an uptick is expected in the coming months, several policymakers have warned that consumer-price growth might undershoot the ECB’s 2% target.
Holzmann isn’t convinced.
“I’m still concerned that inflation might prove stronger than expected,” he said. “Of course there are downside risks as well — though I don’t see enough of them to conclude that they dominate. I believe risks being tilted to the downside is still a minority view in the Governing Council.”
ECB President Christine Lagarde said last week that downside risks “probably” dominate.
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