ECB's Holzmann waters down call for three more rate hikes

VIENNA (Reuters) - European Central Bank (ECB) policymaker Robert Holzmann on Monday watered down his recent call for three further interest-rate increases of 50 basis points in quick succession.

Holzmann, who heads the Austrian National Bank, told German business daily Handelsblatt two weeks ago the ECB should raise rates by 50 basis points at each of its next four meetings because inflation was proving stubborn. The ECB made one such increase at its meeting last week.

Asked in an interview on Austrian national broadcaster ORF TV if he stood by that call given recent turbulence in the banking sector, he said: "I would not rule them out but I would also not say that they will necessarily come either."

ECB President Christine Lagarde said earlier on Monday that financial market turmoil may do some of the European Central Bank's work for it if it dampens demand and inflation.

That was a likely reference to how higher central bank rates and jitters in the banking sector tend to have the same effect by discouraging lending and cooling economic activity.

Similarly, Holzmann said that since his Handelsblatt interview liquidity in the financial system had decreased, referring to banking stocks' recent fall on fears of a new banking crisis.

"What we are concerned with is fighting inflation," he said, adding that if deflation or an inflation reduction began because of tightening liquidity, the central bank would no longer need to raise rates or could raise them more gradually.

Asked if UBS Group's state-backed takeover of Credit Suisse was dangerous because it will create such a big bank in such a small country, Switzerland, he said: "It could become dangerous but it does not have to become dangerous."

(Reporting by Francois Murphy and Alexandra Schwarz-Goerlich; Editing by Josie Kao)