Bank of Greece Governor Yannis Stournaras has confidently predicted that the European Central Bank (ECB) will reduce interest rates by 0.25% next month, with further cuts possible in 2025.
This statement, coming from an influential member of the ECB's Governing Council, signals a potential shift in the central bank's monetary policy.
Mr. Stournaras, speaking on Monday, described the prospect of a rate cut as "reasonable," and when pressed on the likelihood of such a move, he emphasized that "25 basis points is an optimal reduction."
This prediction comes at a time when the ECB's key interest rates are at 3.25% for the deposit facility, 3.40% for main refinancing operations, and 3.65% for the marginal lending facility, as of October 2024. These rates have been steadily increasing in recent years to combat rising inflation.
Mr. Stournaras suggested that further rate cuts could be implemented in 2025 if inflation continues to decline, barring any unforeseen economic developments.
He even hinted that the ECB's key interest rate may fall below the "neutral level" by the end of 2025.
This potential shift in monetary policy is significant because it suggests that the ECB may be nearing the end of its rate-hiking cycle.
A rate cut could stimulate economic activity by making borrowing cheaper, but it could also risk reigniting inflation if implemented prematurely.
Mr. Stournaras's comments will be closely watched by economists and investors as they try to anticipate the ECB's next moves.
His prediction adds to growing speculation that the ECB may be preparing to ease its monetary policy in the coming months.