European Central Bank (ECB) Governing Council member and Austrian Central Bank Governor Robert Holzmann stated on Monday that the risk of raising the interest rates too high "seems dwarfed by the risk of doing too little."
Addressing the audience at the Lamfalussy Lectures Conference, Holzmann remarked that a highly accommodating monetary policy could produce severe side effects on productivity by inducing companies to engage in defensive investments. Defending the ECB's latest decision to boost the interest rates by basis 50 points, the banker stressed that the policy must continue to show "teeth" until the lower inflation target is "also felt by the wider public."
Holzmann underscored that monetary policy credibility is crucial to maintain inflation expectations anchored and minimize the cost of inflation saying that "inaction or weak action would have backfired eroding public confidence."
