“It is appropriate to have two price cuts before the summer holidays and four moves during the year seem reasonable. To this extent, I agree with the expectations of the markets”, he said characteristically.
“We need to start reducing interest rates soon so that our monetary policy does not become too restrictive,” Stournaras told Bloomberg from London.
“We will have little new information before the April meeting, especially on wages in early 2024 – but we will have a lot more data before the June meeting,” Mr Stournaras said, echoing ECB President Christine Lagarde’s comments. Lagarde last week. “I think in order to cut rates as early as April we would have to see the economy collapse and I don’t expect that.”
“He said he doesn’t share the argument that the ECB can’t cut interest rates before the Fed does – ‘and almost all my colleagues agree with that,'” he said.
“We are completely independent and the euro zone is a large open economy with a flexible exchange rate,” Stournaras said. “We must do what is necessary for the eurozone economy – nothing else,” he said, adding that “the case for lowering interest rates is much more convincing for the eurozone than for the US.”
Beyond 2024, the BoE governor expects the deposit rate, currently at a record high of 4%, “to gradually decline to 2% in late 2025 or early 2026.” He considers this to be a neutral level. “At the moment I don’t see interest rates falling below 2%, as was the case before the pandemic” as he said.
Mr. Stournaras pointed out that “economic growth in the euro zone is much weaker than expected and risks are to the downside, while inflation has decreased significantly and risks are balanced.”
Regarding wage increases, he appeared reassuring, stating that real wages will reach the pre-pandemic level only in 2025.
“Wages are still catching up, not outpacing inflation. We should not exaggerate the risk of a wage-price spiral”, he said, adding that “All the more so as nominal wage growth moderates and profits absorb part of wage increases”.
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