According to the Governor of the Bank of Greece, the ECB is working on the creation of a new body in order to mitigate any phenomena of fragmentation of the bond market.
THE interest rate hikes may be gradual estimated by the Governor of the Bank of Greece, Giannis Stournaras.
Speaking today at the International Macroeconomics Seminar of the National Bureau of Economic Research hosted by the BoG, its commander stated that ““Normalization of the monetary policy pursued by the ECB (ie the closure of bond markets and the consequent increase in interest rates) is a necessity after the rise of 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 over the last 20 years. For this reason we observe today that the long term interest rates are kept at much lower levels from those formed in the late 1970s and early 1980s, when this credibility had not yet been achieved.
Referring to the ECB’s decisions last week, the BoG governor noted that the Central Bank had expressed its determination to address the tighter financing conditions and the risks of market fragmentation.
He repeated that the ECB will flexibly implement bond reinvestment expired which are in the pandemic program’s 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 stated by Mr. Stournaras, the The ECB is working on setting up a new body to mitigate any bond market fragmentation. 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.