Cyprus Mail
Banking and FinanceBusinessCyprus Business News

ECB expected to keep interest rates stable, CBC governor says

central bank governor herodotou
Central Bank of Cyprus governor Constantinos Herodotou

The European Central Bank (ECB) is not expected to raise interest rates at its upcoming session, as recent economic data indicates that its benchmark rates have reached levels conducive to achieving medium-term inflation targets, CBC governor Constantinos Herodotou said on Wednesday.

Speaking in preparation for the ECB’s monetary policy session in Athens on October 26, Herodotou reiterated that the primary objective of the ECB is price stability, defined as an inflation rate of 2 per cent.

Reflecting on the ECB’s shift from an accommodating stance in recent years, aimed at boosting economic growth and tackling economic crises in the euro area, Herodotou emphasised that the central bank has transitioned to a more restrictive phase to curb inflation. The uncontrolled rise in inflation would adversely impact households and businesses.

Within this context, the ECB has initiated ten successive interest rate hikes since July 2022, increasing its benchmark rates by 450 basis points.

“I believe that after the recent rate hike in September and considering the latest economic data we have, it is reasonable to expect that we have reached a level where, if rates remain at this level, price stability will return to the 2 per cent medium-term target,” he stressed.

Highlighting the significance of continuous scrutiny of new data, Herodotou also acknowledged that developments in the Middle East should be taken into account, given their potential effects on both humanitarian crises and economic variables.

Nevertheless, Herodotou reiterated that based on the most recent available economic data, it is unlikely that there will be a decision to raise interest rates at the forthcoming October session, underlining that the ECB’s monetary policy stance is grounded in economic indicators.

Responding to inquiries about the importance of coordinating fiscal and monetary policies to ensure effective transmission of monetary policy, Herodotou noted that both the ECB and his own reports have emphasised that such coordination is “very important.”

“What we mean is that fiscal policy should not include horizontal measures, which are inflationary,” he explained.

“Yes, there should be targeted assistance for vulnerable households and those in need. Horizontal measures that affect the entire population, even those who do not need them, are inflationary,” he added.

“In this context, the impact of the exchange rate is being examined. However, we do not target the euro exchange rate. It is not part of our policy, but the exchange rate’s impact on inflation and how it enters the assessment of the criteria is considered,” Herodotou concluded.

Follow the Cyprus Mail on Google News

Related Posts

Row over Vasiliko terminal deepens

Jean Christou

Cyprus tourism on track to meet targets, minister says, after second-best April

Kyriacos Nicolaou

How to inspect secondhand farm machinery

CM Guest Columnist

Cyprus tourist arrivals up 1.7 per cent in first four months of 2024

Souzana Psara

Construction material prices fall from previous year

Souzana Psara

SSM Chair praises Cypriot banks’ capitalisation and NPL reduction

Kyriacos Nicolaou