ECB’s Stournaras: Inflation Subject to Upside Risks, But Far From Being Cause for Concern

20 September 2021

By David Barwick – FRANKFURT (Econostream) – Although euro area inflation is subject to upside risks, the situation is far from being worrisome, European Central Bank Governing Council member Yannis Stournaras said Monday.

In an interview with Politico, Stournaras, who heads the Bank of Greece, declared it too soon to say whether the ECB’s pandemic emergency purchase programme (PEPP) should continue beyond the currently scheduled ending date of next March.

‘We've accepted there's an upside risk regarding inflation’, he said. ‘In the past, however, we have over-predicted inflation, expecting that it moves towards 2% in the medium term.’

Stournaras was reported to have noted that inflation projections assume accommodative monetary policy and that even if realised inflation comes in somewhat higher than anticipated, it would still be below target.

He called for monetary policy to show ‘patience and persistence’ while uncertainty remains elevated and confidence fragile. ‘There is, in my view, still some way to go before price increases raise inflationary concerns’, Politico quoted him as saying.

As for whether the PEPP would continue beyond next March, Stournaras was not ready to commit himself. ‘It would be really arrogant on our part to declare victory over the pandemic right now’, he said. ‘That’s why it is too early to draw conclusions about the extension or not of the PEPP beyond March 2022.’

In any case, he was reported as saying, monetary support would continue. The ECB’s asset purchase programme (APP), ‘for instance, may need to be recalibrated’, he said. ‘To avoid any cliff effect, the APP would benefit from higher purchase volumes and from some important flexibility features of the PEPP. Our experience with the PEPP has shown that by being flexible ... we've achieved significant results with regard to inflation and output at lower purchase volumes.’

Post-PEPP, the ECB would buy Greek sovereign debt via the APP, he predicted. ‘This is not a question of Greece’s ability to service debt, but a question of even transmission of monetary policy’, he said. ‘The ECB Governing Council will ensure that there will not be more fragmentation.’

The Greek economic outlook was good, he indicated, suggesting that the Bank of Greece would issue projections topping the 5.9% government estimate of 2021 GDP growth.

‘I expect our forecast to be higher than 6%’, he said. ‘At the end of 2021 we will likely have higher GDP compared to the pre-pandemic one.’

Looking further ahead, he estimated that the Greek economy would experience growth of about ‘3.5% on average for the next 10 years.’