Home Business ECB’s Stournaras Sees Neutral Rate at Around 1.5% or Even 2%

ECB’s Stournaras Sees Neutral Rate at Around 1.5% or Even 2%

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(Bloomberg) — The European Central Bank hasn’t reached yet the neutral interest rate, which could range between 1.5% to 2%, according to Governing Council member Yannis Stournaras. 

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“We want to approach what our models suggest is the neutral rate,” Stournaras said at the Prague Financial Forum organized by Eurofi, according to a transcript of his remarks sent by Bank of Greece. “We are not yet at the neutral rate which is much higher than zero. It may be around 1.5%, or even 2%.”

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On Thursday, the ECB raised interest rates by a historic 75 basis points to 0.75% and officials left room for another jumbo move in October. 

Stournaras said that the bank’s path to normalization “should not be taken lightly.”

“We may have large losses in output and we should be cautious,” he warned. 

He also said fiscal policy needs to retain a stance that isn’t in conflict with what monetary authorities are doing, and that it needs to support the most vulnerable. 

“It needs to combine taxes on the windfall gains of certain energy producers and subsidies for the losers,” he said. 

The Greek central bank governor pointed out that inflation in Europe is mainly driven by supply shocks, such as the pandemic and the energy implications of the war in Ukraine. 

“Seventy-five percent of the disruptions in consumer prices come from only one commodity — natural gas,” he said, adding that the bank’s models assume gas prices will rise 40% by 2023.

On the other hand, there has been no evidence up to now of second-round inflation effects, he added. 



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