Recent data on inflation and economic expansion strengthen arguments for additional interest rate cuts by the European Central Bank, with two more this year, according to statements by Board member and Bank of Greece Governor Giannis Stournaras to Bloomberg.
“These data strengthen the case for further cuts a little bit,” the head of the Greek central bank said in an interview. “For now, two more interest rate cuts this year look reasonable and consistent with our forecasts. We are in extremely tight territory and will continue to be even if we have two more cuts this year.”
Following a 0.25% cut in borrowing costs , the ECB is weighing whether inflation for the eurozone is moderating sufficiently to allow further easing. With no ex ante commitment several observers argue that one or two more moves this year are possible .
inflation slowed to 2.5% from 2.6% in June. However, there were warning signs in Tuesday’s Eurostat release: Underlying price pressures failed to ease and services inflation remained at more than twice the 2% target.
He said the CBC “should not over-interpret” the services data.
“Yes, it’s above 2% – but manufactured goods is below 2%,” he said Wednesday in Sidra, Portugal. “And if we remove the effects of the benchmark, especially in energy, inflation has been falling continuously for 12 months. This is important.”
Such comments echo President Christine Lagarde, who said this week that the services index need not reach 2% as its rising readings can be offset by other components.
Referring to the turmoil in France, where the prospect of a radical change in power has shocked financial markets, Stournaras said any new government would abide by European Union fiscal rules.
