ECB Insight: Stournaras Fails to Reiterate His Earlier Expectation of a 2% Terminal Rate

6 May 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras’ comments on Monday appear to be a cautious retreat from his earlier insistence on the likelihood of a terminal rate of 2%.

In an on-stage interview at an event in Athens, Stournaras was asked whether the ECB’s easing would continue beyond the seven interest rate cuts to date of the current cycle.

‘We have reached 2.25%’, Stournaras replied, according to a translation of the Greek-language transcript provided by the Bank of Greece, which he heads. ‘It seems that we will continue, but of course everything depends.’

Stournaras noted the ECB’s meeting-by-meeting, data-dependent approach to policymaking.

‘This is precisely because there is a great deal of uncertainty and when there is a lot of uncertainty, you don't move forward with big steps, nor do you make big promises, because you might fall out’, he said.

One can of course quibble as to how much latitude ‘we will continue’ was meant to encompass. That is, was Stournaras merely referring to June’s already likely 25bp rate cut? Or would a more generous interpretation extending beyond next month’s Governing Council meeting be appropriate?

We can understand that Stournaras would prefer a little ambiguity, precisely for the reason he highlighted: high uncertainty.

But looking back at comments he made on April 29, a contrast is discernible. That day, Stournaras said that ‘policy rates, in my view, will continue to decline until they reach 2%.’ As for market pricing calling for rate cuts beyond that level, he said, ‘I believe that we should be cautious in view of the very high level of uncertainty.’

His insistence a week ago on a 2% terminal rate surprised us. It made some sense at the time of our March interview with him, when he allowed that until recent major fiscal decisions ‘and with a tariff war coming’, Europe may have suffered ‘sufficient economic weakness to get not 1.5%, but perhaps 1.75%’, but that ‘[n]ow, things are different’, making the ECB unlikely to go beyond 2%.

Stournaras is an arch-dove, and it is approximately as apparent now as it was on April 29 that there is some likelihood of the ECB at least getting to 1.75%. That he would cling to his earlier insistence on 2% post-April 2 was always incongruous, especially under such elevated uncertainty.

Based on yesterday’s remarks, it seems at least tentatively admissible to conclude that he has abandoned this standpoint. At a minimum, he avoided reiterating that one more cut would be the last, in favour of a more open-ended attitude.

It may come down to the simple realisation that very specific policy predictions are dangerous under the circumstances. But even that implicitly acknowledges a higher probability of reaching 1.75% than did his previous, explicit rejection of such a scenario.