Bank of Greece Deputy Governor Papaconstantinou: ECB Would Adjust Normalisation Pace to Economic Slowdown

1 August 2022

By David Barwick – FRANKFURT (Econostream) – Bank of Greece Deputy Governor Christina Papaconstantinou on Monday said that the European Central Bank would need to modify the pace of monetary normalisation if the economy were to slow down significantly.

In an interview with Greek news portal, Papaconstantinou said that ‘a gradual course of interest rate increases is expected’, throughout which it was essential to maintain optionality, flexibility and data-dependence.

‘The pace of rate hikes in the near term will depend on the medium-term outlook for inflation’, she said.

Scenarios envisaging a ‘major slowdown’ of the economy could not be excluded, she reminded. ‘If these scenarios materialize, the pace of ECB monetary policy normalization over the coming year will need to be adjusted accordingly in order to continue to ensure price stability over the medium term’, she said.

A stagflationary scenario was being ‘widely discussed’, according to Papaconstantinou. Although inflation was seen persisting above 2% over the medium term, growth was now ‘under severe pressure and there are continuous downward revisions to the growth outlook, reflecting the risks surrounding the evolution of key macroeconomic fundamentals’, she said.

She called for ‘maximum preparedness on the part of monetary authorities and governments … in order to address these risks in a timely manner.’

Bank of Greece Governor Yannis Stournaras, a member of the ECB’s Governing Council, said in an interview with Greece’s SKAI Radio last week that ‘winds of stagflation are blowing in the global economy’ and that the impact of Russia’s war of aggression had ‘been underestimated, especially in Europe’.

‘If the world economy, and especially the European economy, goes into recession, starting in '23, don't be surprised if we start having central bank interest rate cuts starting in '23, not increases’, he said.