The European Central Bank needs to cut interest rates at least twice before summer, according to the Bank of Greece Governor Yannis Stournaras, in order to lower borrowing costs and ensure that monetary policy doesn’t become too restrictive.
In an interview at Bloomberg with Mark Schroers, the Governor highlighted that the ECB must make the move and avoid being swayed by the US Federal Reserve.
And, after making cuts before the summer, the ECB should make another two cuts before the end of 2024.
The Governor’s statements come on the heels of the ECB’s decision to again keep rates unchanged for a fourth consecutive time and the consensus among officials that June will probably be the best time to start cuts.
The ECB is looking for a further easing of inflation towards the goal of 2% before changing monetary policy and ECB Christine Lagarde said last week that the economy would have to “crash” in order for a rate cut before June, which is not expected.
The Governor gave some color to market chatter that pay increases are causing inflation, explaining that “wages are still catching up, not leading inflation.”
So, he cautioned, “we should not exaggerate the risk of a wage-price-spiral.”
Looking ahead past 2024, the Governor says he expects currently record-high 4% deposit rate “to gradually go down to 2% at the end of 2025 or the beginning of 2026,” but not below the levels of the pandemic.
