A weak European zone economy may drag inflation below the European Central Bank's (ECB) 2% target, ECB policymaker Yannis Stournaras said in an interview published on Thursday, reiterating his expectations for two interest rate cuts this year.
The ECB has been dealing with hyperinflation for nearly three years, to which it has responded with a series of interest rate hikes that have only recently begun to be eased.
Stournaras, the head of the Bank of Greece is one of the low-interest rate-leaners on the ECB's Governing Council, saying growth was lower than the central bank expected and so was inflation.
"Recent signs of weak economic activity and high levels of uncertainty may reduce inflation more than expected," he told German financial bulletin Platow Brief. "This shows that there is a risk of inflation falling below the 2% target in the medium term."
European zone inflation for July and growth for the second quarter were slightly hotter than economists expected this week but traders still expect the ECB to resume cutting borrowing costs in September or October as surveys show slowing activity.
Stournaras backed that expectation although he warned that this would depend on upcoming data, particularly on wages, and the ECB's new economic projections published next month.
"I still expect two rate cuts this year if disinflation continues as expected," he said. "We are on the right track. In addition, growth was weaker than expected, which also supported interest rate cuts.”
