Rate cuts likely amid weak eurozone growth – ECB’s Stournaras

ECB policymaker Yannis Stournaras indicated that a sluggish eurozone economy might push inflation below the European Central Bank’s 2 per cent target, reiterating his anticipation of two interest rate cuts this year.

In an interview published on Thursday, Stournaras, who heads the Bank of Greece and is known for favouring lower rates, highlighted that economic growth and inflation are both weaker than the ECB had anticipated.

“The renewed signs of weak economic activity and the high level of uncertainty will very likely dampen inflation more than had been expected,” Stournaras told the German financial newsletter Platow Brief. He warned that inflation might dip below the 2 per cent target in the medium term.

While eurozone inflation for July and second-quarter growth exceeded economists’ expectations, traders are still predicting the ECB will begin lowering interest rates by September or October as activity slows.

Stournaras supported this outlook, though he cautioned that any rate decisions would rely on upcoming data, especially regarding wages, and the ECB’s forthcoming economic projections.

“I still expect two rate cuts this year if disinflation continues as expected,” he said. “We are on the right track. In addition, growth is weaker than expected, which also speaks in favour of interest rate cuts.”

Attribution: Reuters