In particular, he emphasized that the European Central Bank should not be afraid to move away from the “overly prudent” stance maintained by Federal Reserve for interest rates.
The Greek central banker reiterated that four reductions in borrowing costs are possible this year. At the same time, however, investors from all over the world appear cautious in their latest estimates.
“Now it’s time to deviate. The situations in the Eurozone and the United States of America are completely different. In the United States, demand is much stronger, mainly due to the boost coming from the budget. We don’t have that in Europe. Inflation in the Eurozone has been fueled mainly by the supply side; not by the demand side, nor by wages.”
Inflation data in the United States beat expectations, prompting a quick revision of bets on monetary easing. Markets now expect the Eurozone, where the latest inflation figures came in below forecasts, to see three rate cuts in 2024, while, from Fed less than two are expected.
After all, the head of the European Central Bank, Christine Lagarde, stated at yesterday’s (11/04) press conference that the Bank is not following its movements Fed. However, he admitted that there are “multiple channels through which influence can be exerted” and not just through exchange rates, as talk of an absolute “1-to-1” euro-dollar parity grows stronger.
As Yiannis Stournaras noted, the difficulties of the Eurozone make it urgent to relax the monetary policy. The Greek banker still expects a soft “landing”, but warned again that if the rate cut is delayed too long, it will jeopardize already anemic growth and could “push” inflation below the 2% target. “We are seeing the first seeds of recovery in Europe. We don’t want to kill these first seeds of recovery,” he stressed.
In this context, it is pushing for successive rate cuts in June and July, and two more by the end of the year. However, ECB hawks prefer a further cautious approach (moves every three months), worried that inflation could recover as wages rise.
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