By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member and Bank of Greece Governor Yannis Stournaras on Monday said monetary policy tightening became necessary when supply-driven inflation threatened to broaden and become entrenched, arguing that timely action could reduce the risk of more abrupt and painful rate increases later.
“Dealing with supply-side inflationary shocks is particularly complex for monetary policy,” Stournaras said in an interview with Greek newspaper The Manifesto. “These shocks raise prices and at the same time slow down economic activity, while rising interest rates cannot remedy supply shortages.”
“However, when inflationary pressures threaten to become generalised and consolidated, monetary policy tightening becomes necessary,” he said.
“At the current juncture, energy price increases are the main factor keeping inflation in the euro area above the 2% medium-term target,” Stournaras said.
“The more pronounced and prolonged these increases, the greater the risk that they will be passed on to the prices of other goods and services and cause second-round effects through wages and inflationary expectations,” he said.
“The moderate increase in policy rates adopted by the Governing Council of the ECB in June and September aims to bring inflation back to the 2% target in a timely and sustainable manner, while limiting the burden on economic activity to the extent necessary,” Stournaras said.
“Timely and prudent monetary policy intervention is intended to limit the risk of inflationary pressures becoming more widespread and permanent, while limiting the risk of more abrupt and painful interest rate hikes being required later on,” he said.
Stournaras reiterated that the Council would take decisions at each meeting on the basis of the available data, the inflation outlook and surrounding risks, and the strength of monetary policy transmission.
He acknowledged that higher borrowing costs were weighing on growth in the short term and said their impact on mortgage credit was more pronounced for prospective borrowers and those exposed to variable interest rates.
“However, persistently high inflation can cause much greater and more prolonged damage,” Stournaras said, citing the erosion of household purchasing power, increased uncertainty and weaker consumption and investment.
The euro area economy was expected to remain resilient in the coming quarters, supported in part by strong global demand associated with artificial intelligence and increased spending on defense and infrastructure, Stournaras said. However, he said high uncertainty required close monitoring of risks to prices and economic activity.
Turning to Greece, Stournaras said mortgage lending was showing positive signs, with its annual growth rate having returned to positive territory in November 2025 for the first time since mid-2010 and having remained positive since then.
Most Greek mortgages carried fixed rates, protecting borrowers from changes in their installments during the agreed fixed-rate period, while state-supported housing programs had reduced financing costs for beneficiary households, he said.
The average rate on new Greek mortgages with an initial fixed-rate period of more than five and up to 10 years was virtually unchanged at 3.72% in July from June, while the corresponding euro area rate increased, Stournaras said.