Bank of Greece is upbeat on the economy this year

Bank of Greece governor Nicholas Garganas yesterday gave Prime Minister Costas Karamanlis optimistic projections on the performance of the Greek economy this year, sources said. During a meeting also attended by Economy Minister Giorgos Alogoskoufis, the head of the central bank said he estimates the country’s growth rate will be maintained at around last year’s level of 4 percent and inflation will edge lower to about 2.9 percent, against a budget projection of 3 percent. Garganas said he considers it certain that ECB will proceed to at least one 0.25 percent hike in its basic rate this year, starting in March. This would bring it to 3.75 percent. Garganas, who is also a European Central Bank (ECB) Governing Council member, said he also briefed Karamanlis on developments in the global economy and in the eurozone, «as we see them in Frankfurt.» In a Dow Jones interview reported by Reuters on Friday, Garganas said ECB was still vigilant against inflation. «The present situation requires close monitoring because, among other things, money and credit aggregates continue to grow rapidly, liquidity is ample by any measure, economic growth is running near, and perhaps above, potential, and our monetary policy continues to be accommodative,» he said. Garganas said ECB has yet to complete its precise forecasts on the economies of member states, and these will be included in the central bank’s interim report on monetary policy which will be submitted to Parliament in the coming weeks. The sources said Garganas advised the prime minister that the high liquidity resulting from low interest rates and a fast-growing economy continue to fuel credit expansion in the eurozone, making for higher market prices and wage demands. Even though oil prices have tended to stabilize recently, Garganas believes that they still pose an inflation risk because costs are expected to be passed on to consumer prices. This will likely add to the effect of additional hikes in indirect taxes and higher-than-expected wage rises in the eurozone. The head of the central bank is said to have ruled out an early retirement program for the Bank of Greece, which he believes to be too costly and unnecessary as there is a steady flow of normal retirements.

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