ECB’s Stournaras: ‘Close to the End’ of Hiking, ‘But We Will Still Have Increases’

24 April 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Saturday reiterated that the ECB was close to but had not yet reached the end of the hiking cycle.

In an interview with Greek television channel ERT, Stournaras, who heads the Bank of Greece, said that Greek fiscal affairs had been ‘helped by high inflation’, which, ‘if transient rather than permanent, is good for public finances’, he said. ‘It's not good for the rest of the economy, but it's good for finances.’

Further boosted by stronger-than-expected economic activity, Greece would up with a primary surplus last year of some €200 million, which was a ‘very positive’ outcome, he noted.

‘From now on … conditions will be more difficult’, Stournaras continued. ‘It will be more difficult because interest rates will be higher, international economic growth rates will be lower and the European Central Bank is expected to raise interest rates a little more, I think we are close to the end, but we will still have increases.’

Euro area inflation had already ‘fallen enormously’ and ‘we expect a de-escalation close to 3% at the end of the year and even more in 2024’, he said. ‘So, clearly we are on a path to reduce inflation.’

To be sure, current inflation was well above the ECB’s price stability target, he said, but the ECB had implemented significant policy tightening. ‘Since July '22 we have raised interest rates by 350bp, 3.5%’, he said. ‘That is too much of an increase.’

‘We expect it [the deposit rate] to go up a little bit, but we are close to the end of the increases’, he repeated.

The ECB would make any further decisions on the basis of data, having ‘come close to the ceiling’, he said. ‘Close, I did not say that we have reached it yet, but we are converging towards it. We must be very, very careful not to make either big moves or small ones.’

Greece would regain investment grade this year, he maintained. The benefit of this would ‘be great, not only for the state, not only for the banks, but also for the private sector in general’, he said.

A major banking crisis in Europe was ruled out ‘no matter what’, he said. As for Greek banks specifically, they ‘today have nothing to do with the banks of the past’, he insisted. ‘They are adequately capitalized, the liquidity ratios are among the best in Europe, they have much better management, tested executives, what we call risk management of a very high level.’