ECB’s Stournaras: ‘Adjustment in Interest Rates Needs to Be More Gradual’
22 January 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Sunday said that euro area interest rates should increase at a more gradual pace in view of slower economic growth and the integrity of the transmission mechanism.
In an interview with an annual publication of Greek daily Kathimerini, Stournaras, who heads the Bank of Greece, noted the recent interest rate hikes of the ECB and said that ‘[i]t is clear that further increases will follow in the future.’
‘The destination for us is clear’, he continued. ‘We should reach the interest rate that will ensure a timely return of inflation to a target of 2% in the medium term.’
It is however ‘very difficult to accurately predict’ what level that will be, he said.
‘Interest rate increases are determined on the basis of the evolution of the outlook for inflation and the economy, from meeting to meeting’, he said. ‘In my opinion, the adjustment in interest rates needs to be more gradual, taking into account the slowdown in economic growth in the euro area, and with a view to the smooth transmission of monetary policy to each euro area country.’
The fiscal position of the euro area this year will be ‘relatively neutral’, given a slowing economy and measures to offset the impact of the energy crisis on firms and households, he said.
‘So far, therefore, there has been no contradiction in the mix of monetary and fiscal policy pursued, without this meaning that there should be complacency or that there is no room for improvements’, he said. ‘The current context of multiple crises requires monetary and fiscal policies that are compatible (complementary) with each other, and together aim at a clear path towards both the desired level of inflation and debt sustainability. The restrictive fiscal stance is therefore considered to be the most appropriate in the current context of a gradual normalisation of monetary policy.’
That Greek sovereign debt will regain investment grade this year ‘should not be expected to come automatically’, he said. Still, with Greek economic growth likely to exceed the euro area average in 2023 and the country’s debt-to-GDP ratio expected to ‘decline significantly’, he said, ‘if prudent economic policy continues in 2023, an upgrade to the investment category is entirely feasible, despite the growing uncertainties of the international environment.’