Exclusive: ECB’s Stournaras: ‘Everything points in the direction of a cut in April. But this is not April’

21 March 2025

By David Barwick – ATHENS (Econostream) – All currently available information suggests that another interest rate cut will be appropriate at the European Central Bank’s 17 April monetary policy meeting, but high uncertainty means that no particular outcome can be taken for granted, according to ECB Governing Council member Yannis Stournaras.

In an interview with Econostream (transcript here) on Thursday, Stournaras, who heads the Bank of Greece, said, ‘If it was today, I would be more certain that we're going to have a cut, because February inflation was 2.3%, in line with our path, and the materialisation of our forecast also depends on bringing down interest rates more.’

Wage growth, core inflation and services inflation were all cooperating, he observed.

‘Everything points in the direction of a cut in April’, he said. ‘But this is not April. It is still March. We have one month to go, so I cannot tell you that we're going to cut. And uncertainty is so elevated that it is impossible to say what might happen to change the decision.’

Stournaras, like his Maltese counterpart Alexander Demarco in an interview with Econostream earlier this week, ‘fully’ agreed that it was more the case that a reason would be needed to pause rather than that one would be needed to cut, essentially making a cut next month the default option.

Whilst maintaining his earlier prediction that two more rate cuts this year would lead to a terminal rate of 2%, this was ‘not written in stone’ and the precise timing of said cuts could also not be predicted under high prevailing uncertainty, he said.

Still, the view of some observers that the terminal rate could be as low as 1.5% was unlikely to prove correct, he said. ‘It’s too extreme, in my humble opinion’, he said.

Even before recent important fiscal policy decisions, euro area economic weakness would probably not have justified a terminal rate of 1.5%, though perhaps 1.75%, he said.

‘Now, things are different, though we still have elevated uncertainty and there’s still a long way to go to increase growth in Europe without inflation – meaning a Capital Markets Union, deregulation, the Competitiveness Compact, a Banking Union, and so on’, he said.

Stournaras welcomed Germany’s decision to dispense with the debt brake, arguing that the euro area’s biggest economy had the fiscal space for this. The decision could pave the way to stronger growth ahead, but with respect to financing conditions was ‘quite restrictive, taking into account the drastic increase in German bond yields’, he said.

‘[S]o it is an argument to lower interest rates’, he said. ‘There's no question about that.’

Moreover, it would take time for inflation or growth numbers to start reflecting the decision to suspend the debt brake, he said. In this regard, the decision might thus not directly affect monetary policy decisions for a while, he said.

The ECB should be ‘very close’ to its 2% inflation target at the end of the year, Stournaras affirmed, noting the recent weakness of energy prices. Caution was in order, though, as ‘we might have tariffs and retaliation that could impede the disinflation process.’

However, even if tariffs led to short-term upward price pressures, the hit to the economy would tend to dampen inflation later on, he argued.

‘So, we have a stagflationary impact at first, but a deflationary one later on, and this should not distort our policy direction towards lower interest rates’, he said. ‘Meanwhile, monetary policy is now meaningfully less restrictive, but still restrictive. So overall, the direction of monetary policy is clear to me. It is towards reducing rates further, and markets agree with that.’

A trade conflict would only produce losers, among them the US itself, he said. The increased probability of a recession in the world’s largest economy was ‘another reason why I have no doubt that in the medium term, the trade war will be deflationary everywhere’, he said.

Even after one more 25bp rate cut, monetary policy could potentially remain restrictive, he said.

With respect to the US dollar, Stournaras naturally declined to make any predictions. ‘[B]ut what I can say is that the initial forecast by analysts of a US dollar appreciation was a mistake’, he said. ‘And I continue believing it was a mistake.’