•Around the end of June would be the most appropriate time for the European Central Bank (ECB) to proceed with its first interest rate reduction, according to the Governor of the Bank of Greece Giannis Stournaras.

Speaking at his university Liverpool the BoE governor reiterated that “the end of the first half of 2024 would probably be the most appropriate time for our first rate cut, provided of course that the incoming data does not change the picture of deflationary inflation”.

In particular, as he estimated, although significant progress has been made in reducing inflation in the euro zone (inflation in October 2022 had peaked at 10.6%, while in January 2024 it was 2.8%), however, the battle with inflation not yet won, while uncertainty is very high.

THE ECB, as he indicated, will proceed with careful steps in order not to jeopardize the progress achieved so far. According to the available data, inflation is decelerating faster compared to the December macroeconomic projections and is very likely to come very close to the 2% inflation target set in the autumn of this year.

Also, the recent slight slowdown in wage growth is encouraging and much will depend on the evolution of profit margins as well as developments in overall costs, including energy costs.

Referring to the banking sector, he underlined that so far, the EU banking sector seems to have successfully coped with the multiple challenges. However, there is no room for complacency. The authorities, as he said, should prepare in time for any adverse financial circumstances. Previous crises demonstrate how important it is to strengthen the institutional framework before risks occur.

Referring to the further course of both Public as well as private debt Mr. Stournaras noted that their sustainability so far has largely relied on the difference between nominal interest rates and the GDP growth rate being negative.

That is, the interest rate in question was lower than the nominal growth rate, and contributed to the financial stability of the public and private sectors.

Policymakers as he pointed out should understand the importance of this variable and ensure that it has the right sign, if not always, at least most of the time. A favorable interest rate-growth differential can help our economies remain resilient during the transition to the new normal.