MNI BRIEF: ECB At Peak, As Policy Bites On Demand - Stournaras

European Central Bank interest rates peaked with last week’s 25bp hike, Bank of Greece governor Yannis Stournaras said in an interview Thursday, adding that while a cut is still months away at least, policymakers should not succumb to German “alarmism” based on backward-looking inflation assessments.

“Our impression is that the interest rate level we have reached now, if we maintain it for some time, will lead to inflation being back at our target level of 2.0% by the end of 2025. Maybe it will even be a little earlier,” Stournaras told Borsen-Zeitung, with rates staying at their current level for at least “ about a few months.” (See MNI INTERVIEW: September Rate Rise Probably ECB's Last- Simkus)

Financing conditions have tightened “considerably”, a fact that was becoming increasingly evident in stagnating euro growth, he said.

“The projected 0.7% growth results almost entirely from positive overhang effects from 2022,” he said. “Monetary policy is already biting significantly and dampening demand considerably [...] there is still a lot of restrictive impulse in the pipeline.”

He rejected talk of active QT - selling bonds bought under APP - as both “very risky” to financial stability and likely to realise substantial central bank losses. The ECB should also allow its existing minimum reserve ratio policy time to take effect before considering any changes, he said.