The rise in interest rates may be gradual, according to the Governor of the Bank of Greece, Giannis Stournaras.
Speaking today at the National Bureau of Economic Research International Seminar on Macroeconomics hosted by the BoG, its governor said that the “normalization of monetary policy pursued by the ECB (ie the end of bond markets and the consequent increase in interest rates) is a necessity after rising inflation.
However, as he estimated, this adjustment of monetary policy to normalcy can be done gradually.
As he characteristically stated, the credibility of both the ECB and the US Federal Reserve (FED) has been consolidated in the last 20 years. For this reason we observe today that long-term interest rates are kept at much lower levels than those that were formed in the late 1970s, early 1980s, when this reliability had not yet been achieved.
Referring to the ECB’s decisions last week, the BoG governor said that the Central Bank had expressed its determination to address the stricter financing conditions and the risks of market fragmentation.
He reiterated that the ECB will flexibly implement the reinvestment of maturing bonds in the pandemic portfolio (PEPP). This is in order to maintain the smooth transmission of monetary policy throughout the euro area, which is important for fulfilling the ECB’s mandate on price stability. In addition, as Mr. Stournaras mentioned, the ECB is working on the creation of a new body in order to mitigate any phenomena of fragmentation of the bond market. According to him, they are likely to be caused by high uncertainty due to the economic and financial consequences of the war in Ukraine, combined with the fact that the euro area is a full monetary union, but a deficient fiscal, banking and capital market, that is, an incomplete economic union.
SOURCE: AMPE
Source: Capital
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