Why is ECB urged to adopt faster rate cuts?

Yannis Stournaras, the governor of the Bank of Greece, has called for the European Central Bank (ECB) to accelerate its pace of interest rate cuts to prevent the Eurozone economy from suffering. He believes that the current “highly restrictive” rates pose a significant risk to economic growth.

Stournaras, who is also a member of the ECB’s Governing Council, argues that recent economic data suggests that inflation is on track to meet the ECB’s target of 2% by early 2025. This, he contends, provides a strong case for more aggressive rate cuts.

He has publicly backed two additional quarter-point rate cuts this year, one at the upcoming ECB meeting in Slovenia and another in December. This would bring the interest rate down to 3%, which Stournaras still considers “highly restrictive.”

The Greek central banker emphasizes that the ECB should not hesitate to cut rates at every meeting if inflation continues to decline towards the target. He warns that failing to do so could lead to an economic downturn and further undershoot the inflation target.

Stournaras’s views are supported by other ECB policymakers, including François Villeroy de Galhau, the governor of the Bank of France. Villeroy has also indicated that he sees a strong case for further rate cuts.

However, the ECB’s decision will ultimately depend on the evolution of inflation and other economic indicators. While the central bank is expected to ease its monetary policy further, the exact pace of rate cuts remains uncertain.