ECB’s Stournaras Reckons Investor Rate-Hike Bets Are Unwarranted
Investors shouldn’t expect premature interest-rate increases from the European Central Bank as it plots its exit from pandemic stimulus, Governing Council member Yannis Stournaras said.
Bets that the ECB’s first hike will happen around mid-2023 “are not in accordance with our forward guidance,” the Bank of Greece governor told Bloomberg Television on Thursday. European government bonds extended gains after the comments.
Stournaras also said that policy makers will try to avoid any disruption after the end of the ECB’s 1.85 trillion-euro ($2.1 trillion) emergency debt-buying program, which was launched in response to a selloff in bonds by highly indebted countries.
The comments provide a glimpse of the ECB’s concern that financial-market volatility and tightening could hurt the euro region’s recovery just as officials ponder the future of their stimulus tools as they follow a markedly looser policy path than advanced-world counterparts.
With emergency debt purchases scheduled to end in March, the ECB is studying a new bond-buying plan to prevent disruption when that existing crisis program gets phased out, officials familiar with the matter said this week. Policy makers have set up their December meeting as the moment for any such decisions.
“Asset purchases aim at favorable financing conditions, at smooth transition of monetary policy to prevent any kind of fragmentation in jurisdictions in the euro area,” Stournaras said. “I’m sure that the Governing Council will continue to aim at this.”
Money markets are betting the ECB will raise the deposit rate by 10 basis-points in 2023, according to Eonia forward swaps, little changed from early July when the central bank laid out its strategy review. Expectations were however pushed back to 2024 in the middle of August.
Italian bonds rose after Stournaras’s comments, with yields on 10-year securities falling as much as six basis points to 0.84% before trimming some of the gains. Spanish and Greek debt also advanced.
The ECB’s ultra-loose stimulus set it apart from central banks such as the Federal Reserve and the Bank of England that have signaled possible tightening.
“We’re not in the same position,” Stournaras said. “The inflation forecasts are lower for the euro zone than in the U.S. and in the U.K. It’s natural that we’re in a different phase of monetary policy.”
While the euro area rebounded strongly over the summer, momentum has slowed recently as the global shortage of parts and raw materials brakes manufacturing. Service-sector companies are also reporting cooling demand growth, partly linked to concerns over the pandemic, inflation, and some moderation after initial reopenings.
The energy crunch driving gas prices to records is putting further pressure on consumer prices and the wider economy.
While “we’re in the midst of a perfect storm,” Stournaras said, “I will not rush to say that we have stagflation now.” Forecasts from the ECB and other institutions point to an inflation slowdown to below its 2% target next year, he added.
Stournaras also said the Governing Council will discuss whether to include Greek debt in future asset purchases that had been excluded until now because of its low credit rating. He cited “very substantial progress” in the country’s economy.
“It’s true that Greece does not have investment grade yet, but I’m sure that if we didn’t have the pandemic, investment grade in Greece would have been restored,” he said.
©2021 Bloomberg L.P.