He estimated that the successive jumps of inflation to ever higher levels will soon start to stop, arguing that its stable de-escalation is imminent.
In favor of the gradual normalization of the ECB’s monetary policy appointed the governor of the Bank of Greece Yannis Stournaras, pointing out that the policy of further progressive normalization of interest rates is appropriate, so that they converge towards the estimated equilibrium interest rates.
As Mr. Stournaras explained, speaking at the European Forum Alpbach (EFA) 2022 in Austria, in the euro area inflation comes from the supply sideas is the case in the USA even characterizing the phenomenon as the “Lernaean Hydra”
For this reason, he said, the main challenge is how to reduce inflation without causing a sharp drop in GDP and employment. In this environmentof the perfect inflationary storm we are in, the appropriate monetary policy response is to smooth out successive supply shocks, with gradual but decisive policy normalization that preserves discretion and incorporates flexibility. I believe that the gradual normalization approach we have followed is successful and should be continued» he said characteristically.
Regarding the subsequent interest rate hikes as Mr. Stournaras said, these will be decided at each meeting of the Governing Council of the ECB. Both the appropriate timing and extent of interest rate changes will depend, he said, on the assessment of risks to inflation.
He predicted that supply side disturbances and war-related disturbances are likely to continue. But the slowdown in demand will help lower inflation. “The Board should continue to monitor all factors carefully. A gradual, step-by-step approach is appropriate given that there is much uncertainty and supply-side inflation” underlined the commander of the TtE.
He also recalled the decision taken by the ECB in July in order to prevent the risk of the fragmentation of monetary policy – which concerns the excessive increase in borrowing costs for the countries of the European South – by adopting the instrument for the protection of transmission (Transmission Protection Instrument – TPI), a very powerful tool that will support the effective transmission of the ECB’s single monetary policy to all euro area countries during its normalization process.
For the further course of inflation estimated that the successive jumps of inflation to ever higher levels they will soon begin to stall, arguing that its steady de-escalation is imminent. According to the most recent Eurosystem expert projections (published in June) cited by the ECB governor, inflation is expected to peak before the end of the year, decline gradually in 2023 and converge towards the target in 2024.
RES-EMP
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