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The European Central Bank will raise rates by a half-point in the fall, after July’s planned move of half that size, if the trajectory for consumer prices doesn’t improve, according to Governing Council member Robert Holzmann.

While a big increase would have sent a stronger signal as policy makers battle record inflation, “it was good first to test with a smaller step,” said Holzmann, who heads Austria’s central bank. “But if the situation doesn’t change or deteriorates, then in September a bigger step will be implemented.”

Holzmann spoke a day after the ECB unveiled its plan for rates, which amounted to a win for the Governing Council’s hawkish contingent, of which he’s part. He said markets reacted very well to Thursday’s announcements by raising bets on higher borrowing costs. The ECB also outlined sustained increases beyond September.

“A rate journey always starts with a small step,” Holzmann told reporters in Vienna, echoing similar remarks from ECB President Christine Lagarde a day earlier. He put estimates of the neutral rate of interest, which neither stimulates nor slows the economy, at about 1.5 percent.

(Bloomberg)

European Central Bank policymaker and Austrian National Bank (OeNB) Governor Robert Holzma

Holzmann backs big ECB hike in fall if no inflation improvement