ECB’s Cautious Approach to Interest Rates Amid Economic Uncertainty
As the European Central Bank (ECB) navigates the complexities of the euro-area economy, Governing Council member Yannis Stournaras emphasizes the need for a gradual reduction in borrowing costs. In an interview with To Vima newspaper, the Greek central bank chief stresses that the ECB’s moves should be guided by available data, with a steady pace and a willingness to consider larger cuts if inflation remains below target in the medium term.
A Delicate Balancing Act
The ECB has already taken four quarter-point steps to cut interest rates, with further easing expected in the coming year. Most policymakers, including Stournaras, advocate for gradual moves, typically interpreted as 25 basis-point steps. This cautious approach is driven by concerns about the euro-area economy’s sluggish growth, which is expected to reach only 0.7% this year and 1.1% in 2025.
Growth Concerns Take Center Stage
Stournaras, known for his dovish stance, highlights the need for further monetary policy easing, citing the medium-term inflation trend. However, he also expresses concerns about growth, which he believes is struggling to regain momentum. Geopolitical risks and international trade pressures, exacerbated by recent developments in the US and elsewhere, pose significant threats to global economic growth and, by extension, the euro-zone economy.
A Fragile Economic Landscape
The euro-area economy faces significant challenges, including elevated geopolitical risks and intensifying trade pressures. These factors could push euro-zone inflation below target, underscoring the need for a cautious and data-driven approach to monetary policy. As the ECB navigates this complex landscape, Stournaras’ emphasis on gradualism serves as a reminder of the delicate balancing act required to support economic growth while keeping inflation in check.
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