In favour of two reductions from the European Central Bank (ECB) prior to August and two others before exhaling the year, the Greek central banker, in an interview with Bloomberg, joined. “We need to start reducing interest rates soon so that our monetary policy doesn’t become too restrictive,” said Giannis Stournaras. “It is advisable to make two interest rates reductions before summer holidays and four moves during the year seem reasonable. So far, I agree with market expectations.” With the next monetary policy decision placed on 11 April, Mr. Stournaras pointed out that “we will have little new information before the April meeting, especially on wages in early 2024 – but we will receive much more information before the June meeting”, which in turn is scheduled for 6 of that month. “Economic growth in the Eurozone is much weaker than expected and risks are downwards, while inflation has decreased significantly and risks are balanced,” explained Giannis Stournaras. He also downgraded the strong nominal wage increases, stressing that real wages would only reach the level before the pandemic in 2025. “So wages continue to approach, they do not drive inflation. We should not magnify the risk of a wage-price spiral,” he added. Even more so as “the increase in nominal wages is tempered and profits absorb part of wage increases”. “In addition, the ECB’s balance sheet will be reduced by around EUR 800 billion this year, through TLTRO repayments and the gradual abolition of APP and PEPP reinvestments,” added Mr Stournaras. “Just like interest rate increases, this alone leads to stricter economic conditions”.
Interest rates of the ECB: Two reductions by August and two by the end of 2024
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