The governor of the Bank of Greece, Giannis Stournaras, foresees two more equal reductions in interest rates, by 0.25% each, by the European Central Bank (ECB) within 2024.
As he says in an interview published today in the Financial Times, “Even if we have a 25 basis point cut now and another in December, interest rates will go back to just 3%, from 3.5% today, remaining very limiting levels”.
The 68-year-old central banker added that there would, perhaps, be a strong case for a further easing of monetary policy in 2025.
It is recalled that the ECB will meet next week in Slovenia, where the issue of interest rate cuts is expected to be raised. The next crucial meeting of its Board of Directors for the future of interest rates will be that of December shortly before the expiration of 2024.
Mr. Stournaras pointed out that “confidence indicators remain very subdued and inflation is falling faster than macroeconomic projections predicted [της ΕΚΤ] of September” and added: “The latest figures show that we will probably reach the 2% target in the first quarter of 2025.”
In September, inflation in the euro area fell to 1.8% ‒ below the ECB’s target for the first time since 2021.
However, consumer prices are expected to rise faster in the final months of the year as base effects from energy prices cease to be incorporated into annual rates of change.
The ECB’s target is an inflation rate of 2% in the medium term, but at the same time, strong wage growth and high service inflation continue to cause concern.
The ECB began easing its restrictive monetary policy in June and proceeded to cut interest rates again in September. If it also cuts the policy rate below 3.5% in October, it will mean that it is abandoning its previous practice of cutting interest rates by 25 basis points every other meeting.
As the Governor of the Bank of Greece argues, the medium-term trend of inflation suggests that there is scope for a faster reduction in interest rates.
“If inflation continues its downward path towards the 2% target, why not cut interest rates at every meeting?” said Mr. Stournaras.
According to Mr. Stournaras, there are few members of the Board of Directors who have a completely opposite opinion on the ECB’s upcoming monetary policy moves.
“We all have the same figures at our disposal, and they show that we are on track to achieve the 2% target [για τον πληθωρισμό] in mid-2025, if not earlier” he said characteristically adding that, “if we do not act, there is a risk of causing a blow to the economy and driving inflation below the target”. This would mean a return to the “old problem” of very low inflation. “Nobody wants that.”
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