ECB’s Stournaras: Agree With Lagarde That ‘We Still Have Some Way To Go’

10 May 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Wednesday reiterated that the ECB was close to but had not yet reached the end of the current monetary policy tightening phase.

In an interview with Greek business newspaper Imerisia, Stournaras, who heads the Bank of Greece, said of the ECB’s hiking cycle, ‘We are close to the end. We are not there yet, so I agree with [ECB President] Mrs [Christine] Lagarde that we still have some way to go. We cannot yet say how many increases will be made. This will depend on forecasts for inflation, economic growth and financial conditions.’

Still, he said, the tightening process would come to an end this year, ‘unless something changes dramatically’.

Once at the terminal point, interest rates would remain there for a period that ‘won't be short’, he said, reminding that the ECB’s forecasts envision a return to 2% inflation only in 2025.

‘Interest rates will stay where they are today or more for a while until inflation is very close to the 2% target’, he said.

As to whether zero interest rates would ever return, this was unknown, he said. When the shocks of the pandemic and Russia’s war against Ukraine are gone, ‘who knows?’, he said. W’e may return to very low interest rates again. But we don't know that yet. There is, however, a possibility of this.’

Given much higher borrowing costs, slower credit expansion was ‘to be expected’, he said. Much of this was ‘[n]ot because no new loans are being made’, he explained. ‘New loans are being made, but many of the previous ones are being repaid because of higher interest rates.’

There was only a low probability of the US banking problems spilling over into Europe, he said, noting Europe’s ‘more stringent supervision than in the United States.’

The Greek economy warranted optimism and ‘[a]ll indicators attest to this’, he said. ‘We have an increase in investment, direct and indirect. We have seen rapid fiscal improvement since the pandemic. Investment grade is also coming, which means that we will have a significant improvement in growth conditions and lending rates. On one condition: that we have a stable long-term government and that it quickly takes the decisions needed to get the investment grade. Decisions that it will include in its programme statements.’