ECB’s Stournaras: ‘Further Rate Increases Will Need to Be Gradual’

1 December 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Thursday came out in favour of making any more ECB rate hikes ‘gradual’.

In an interview with German business daily Handelsblatt, Stournaras, who heads the Bank of Greece, said that ‘[f]urther rate increases will need to be gradual, depending on the inflation outlook and taking into account recession risks and financial stability implications.’

According to Stournaras, ‘several factors will contribute to easing inflationary pressures in the coming months’, including subsiding supply constraints and less dynamic energy and commodity prices.

‘Slowing growth is reducing inflationary pressure’, he added. ‘The ongoing normalization of monetary policy will bring inflation back to our target.’

Asked about other anti-inflation instruments, he urged that energy and fiscal policies support monetary policy, ‘at least for the period when energy prices are being weaponised by Russia and energy markets remain volatile, uncertain, and dysfunctional’, by acting ‘to diversify energy supplies, promote efficient energy consumption, and address excessive energy prices.’

Monetary policy normalisation would only have a ‘limited’ impact on the cost of servicing Greek sovereign debt, given the latter’s ‘extremely long average maturity and a high proportion of fixed-rate debt with low interest rates’, he said.

Normalisation therefore did ‘not immediately’ pose a threat in this regard, he said. ‘But in the longer term, containing sustainability risks will depend on continuing prudent fiscal policies and implementing structural reforms.’

Against the backdrop of declining public debt and expected primary surpluses starting next year, Greece ‘could’ be upgraded to investment grade next year, he said.

Greek government measures should ‘stem the inflow of new defaults’ in the country’s banking sector, he said. ‘We expect the impact to be limited and manageable.’

After Greek economic expansion of 6.2% this year, GDP growth should moderate next year to 1.5%, he said.