MNI INTERVIEW:ECB Rates Course Hinges On '25 Growth-BoG Deputy

The length of time during which the European Central Bank keeps interest rates at elevated levels will depend on economic growth, with the outlook for 2025 key, the deputy governor of the Central Bank of Greece told MNI.

“The answer to the question for the interest rates ‘how long is long?’ lies on the level of economic activity, particularly in 2025, when inflation is projected to de-escalate to around 2%,” Theodore Pelagidis said. “To respond one has to predict whether stagnation and weak growth will insist, or are we going to have a full and robust recovery?”

While the ECB says that its 4% deposit rate if “maintained for a sufficiently long duration” will make a “substantial contribution” to reaching its 2% inflation target, and President Christine Lagarde at last week’s Governing Council meeting refused to rule out further hikes, the eurozone’s growth outlook is highly uncertain, Pelagidis noted.

“I think that it was clearly a holding, easy meeting. President Lagarde’s key phrase that ‘sometimes inaction is action’ should be taken seriously into account by the markets for the coming months,” he said in an interview, "The approach was very much in balance, neither dovish nor hawkish, an application of the Aristotelian 'golden mean' and 'golden rule' under the serenity of the Athenian sky. I saw realism and pragmatism by the GC members, and this is good news."

IN NO HURRY

Pelagidis also pointed to the Council’s continued determination to bring price rises back to target in a “timely” manner.

“That’s the key phrase, meaning not hawkish, not in a hurry, they will wait,” he said.

Credit standards tightened by more than banks expected in the second quarter of this year, according to the latest eurozone Bank Lending Survey, as loan demand from both households and firms fell.

“I think that contraction in bank lending is becoming the strongest transmission channel of ECB’s monetary policy in its effort to bring inflation down back to 2% in the medium term,” Pelagidis said.