ECONOMY

Garganas indicates recent ECB rate hike may not be enough

Interest rates in the eurozone remain very low, even after the European Central Bank’s rate hike last week, European Central Bank Governing Council member Nicholas Garganas said yesterday. «A serious problem for Greece and the eurozone economy is that it is swimming in excess liquidity… In the eurozone, nominal and real interest rates continue to be at very low levels. The ECB’s monetary policy remains accommodative,» he told a parliamentary committee. «The ECB will continue to closely monitor risks pertaining to price stability and will judge whether new or fresh decisions must be taken on interest rates,» he said. The ECB last week raised its key rate a quarter point to 2.5 percent, its second tightening in three months, and signaled further rate hikes based on how the economic data unfold. Mounting evidence that the 12-nation economy is strengthening, notably in the way of consumer spending, has virtually convinced financial markets that the next rate hike will come in June and at least one more hike after that in 2006. Garganas cited a study by business research firm ICAP, to be published shortly, showing that 88 percent of Greek borrowing households service their loans with installments not exceeding 40 percent of their income; the rest, however, face problems. He said the central bank cannot intervene on the issue of credit expansion but can only ask commercial banks to book higher risk provisions and employ stricter lending criteria. (Reuters, Kathimerini)