Threats arising from persistent inflation could prevent the European Central Bank (ECB) from cutting interest rates this year, even though a recession cannot be ruled out. This statement comes not from me, which would surprise no one, but from Robert Holzmann, Governor of the Austrian Central Bank and a member of the ECB’s Governing Council.

The eurozone economy has recently disappointed and will likely prove overly optimistic once fourth-quarter results are released. At the same time, geopolitical conflicts, such as those in the Middle East, could disrupt supply chains and energy markets, thereby maintaining pressure on prices that the ECB cannot ignore.

Indeed, inflation came closer to the ECB’s 2% target at the end of last year, prompting speculation about when policymakers would reverse the largest monetary tightening campaign since introducing the euro 25 years ago. Investors are anticipating six quarter-point rate cuts starting in April.

Holzmann reiterated a point raised by his colleagues, including ECB President Christine Lagarde and Chief Economist Philippe Lane, that it is “far too early” to discuss rate cuts. The message was confirmed by Bundesbank President Joachim Nagel, who told Bloomberg that it was premature to talk about monetary easing, suggesting that there would be no movement until the summer.

The ECB currently forecasts that overall inflation will reach 2% in the second half of 2025 while underlying price pressures are expected to remain above this threshold until the end of 2026.