ECB’s Stournaras: We’ve Reached the Peak

21 September 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Thursday said that interest rates had probably peaked with the 25bp hike decided last week by the ECB.

In an interview with German business daily Börsenzeitung also published on the website of the Bank of Greece, which he heads, Stournaras said, ‘Yes, I think we have reached the interest rate peak. That is my feeling and my understanding.’

Kept at their current level, interest rates should restore price stability by end-2025 if not earlier, he said. As for a cut, the likely next move, ‘[i]n any case, we are talking about a few months’, he said.

There was ‘still a lot of restrictive impulse in the pipeline’, he said. Though his preference last week had been for no change, there were also ‘good arguments’ for the hike, ‘and that's why I can live with the decision’, he said.

However, the threat of a situation in which the burden of interest payments exceeded nominal growth was very worrisome, whether with respect to sovereigns or to firms and households, he said.

‘We can quickly get into big problems there’, he said. ‘So far we have been lucky that nominal growth has been much higher than interest costs. But that can now turn around.’

This is why the ECB has been harping on the need for sound public finances, he said.

Stournaras also urged that monetary authorities be ‘very careful’ about accelerating quantitative tightening, in particular via the PEPP.

‘If we were to increase the pace significantly now, there could be an outcry in the markets and turbulences’, he said. ‘We should not take any unnecessary risks. This is all the more true because PEPP gives us the necessary flexibility to act if there are problems with the transmission of monetary policy.’

Active sales of ECB-held assets ‘would be very risky’, he said. ‘By the way, there is a second argument. If we were to sell bonds, we as central banks would realise losses on those bonds that are so far purely theoretical and will not become reality if we hold the securities to maturity. Why would we do that?’

The recent increase in inflation expectations was not cause for great concern, he said, and overall, the latter were ‘still very well anchored. And the increase is more than compensated for by the decline in growth expectations.’