December 18, Frankfurt – ECB officials Yannis Stournaras told that before starting to reduce borrowing costs from record highs, the bank must see inflation stabilise below 3% by the middle of next year.
Stournaras’s remark, which comes from an outspoken dove, highlights the ECB’s determination to stop the biggest wave of inflation in the 20 eurozone countries in at least a generation.
It also underscores the gap that exists between the European Central Bank (ECB) and investors, who, in spite of President Christine Lagarde’s recent backpedalling, anticipate that the bank will begin reducing interest rates in April or even March.
In an interview, Bank of Greece governor Stournaras said, “We can’t risk it.”
“We need to see inflation sustainably below 3% by the middle of the year before cutting rates.”
In addition to maintaining rate stability this week, the European Central Bank (ECB) projected average inflation to be 2.8% for this quarter, 2.9% for the first three months of 2021, and 2.7% for the second quarter of 2024.
Stournaras stated that “unit labour costs, unit profits, and inflation expectations must all point to inflation going back to 2%” in addition to price growth.
“We’ll also have to evaluate the overall state of the economy,” he stated.
Bostjan Vasle, his colleague from Slovenia, added that market wagers on impending rate reduction were premature and that the ECB needed at least till spring to reevaluate its stance.
It was revealed exclusively by Reuters last week that ECB policymakers did not anticipate changing their stance on the necessity of high rates before to their March meeting, which would make any cut in rates before June challenging.
The first policymaker from the European Central Bank to publicly discuss rate cuts in the autumn of 2024 was Stournaras.
At that time, markets continued to bet on rates remaining high for an extended period of time, but they have since significantly reversed due to some lower-than-expected inflation data and a shift in the U.S. Federal Reserve’s language.
The rate the ECB pays on deposits will drop to 2.5% in 2024 due to ECB cuts estimated by the money markets to be 150 basis points higher.
