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MNI US Credit Weekly: Oil's Well That Ends Well
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The Federal Reserve’s next move on interest rates is likely to be higher as long inflation pressures linger and given new Fed Chair Kevin Warsh’s strong focus on the price stability side of the central bank’s mandate, former Fed vice chair Donald Kohn told MNI.
“To carry through on the emphasis and priority given to price stability, is the next move more likely to be up or down? I would say it's more likely to be up,” said Kohn, a four-decade veteran of the Fed who is now at the Brookings Institution.
While Warsh was circumspect in offering policy guidance or even detailed insights into his economic views, Kohn said there was a hint of it when the chair spoke about the degree of policy restrictiveness, describing it as uneven.
That, Kohn noted, was a break from Jerome Powell’s R-star focused approach, which would lead the former chair to say policy was mildly restrictive.
Warsh also repeatedly emphasized his commitment to returning inflation to 2% after more than five years of overshoot, painting it as the FOMC’s primary immediate goal. His hawkishness took many investors by surprise.
“I share some of the skepticism on whether they are headed back to 2%. And I was a bit skeptical on whether they needed, particularly, that last cut in December, the insurance cut,” he said.
“Growth is solid, the labor market looks solid. If wealth continues to build and there isn’t some evidence of the surge in productivity, the argument might be they bought a little too much insurance last year and they have to take it back.” (See MNI INTERVIEW: Fed At Neutral Risks Entrenched 3% Inflation-Koenig)
Kohn said he expected a hawkish shift in the tone and substance of the Fed’s internal deliberations but was surprised by how quickly the transition to active discussion of rate hikes had taken place.
“The direction of travel was where I expected things to go but the travel was further than I thought it would go,” he said.
TASK FORCES
The former vice chair welcomed Warsh’s launch of various task forces to examine possible improvements in everything from communications to the balance sheet. He said there is precedent for this around the world.
“I think that's a great idea. It gives time, six months at least, for him to get his feet on the ground and figure out what needs to happen, what's already happening, etcetera. I like the idea of bringing in some outside voices into those task forces. It's a little tricky with confidential information and whatnot, but that can be handled,” said Kohn.
“There are other central banks – the Bank of England, the Riksbank, Reserve Bank of New Zealand, the Reserve Bank of Australia – that have brought in outsiders to evaluate them. And in this case he's talking about task forces that are joint insiders and outsiders, so I think that's a very constructive way to proceed.”
ECONOMIC NARRATIVE
Warsh’s reluctance to offer economic clues led to a dearth of information about his inclinations that will need to be addressed more directly as his tenure evolves, said Kohn
“He kind of used the dialing back for guidance to avoid saying very much about how he was viewing, or the committee was viewing, the economy. Why was the inflation forecast revised so much? Why were the dots revised so much higher? We didn’t get that. How is inflation going to come down over time. We didn’t get that either.
“But he's only been there three weeks, so I think it was a good start. Even if he doesn't give forward guidance on interest rates, he needs to give a story, a narrative around what's happening in the economy, why it's happening, what the committee led under his leadership will be looking at.”
Jun-18 14:59
The Bank of England voted seven-two to hold Bank Rate at 3.75% on Thursday, while stressing uncertainty over the outlook for energy prices, any second-round effects and output even with an Iran peace deal.
The voting pattern was very similar to that of April’s meeting, with only Megan Greene's vote changing as she joined Chief Economist Huw Pill in voting for a 25-basis-point hike. The majority were sceptical that material second-round effects were likely.
"The labour market continues to loosen, and signs of a weakening economy could contain inflationary pressures," the Monetary Policy Committee said in its statement, which also noted that an increase in "interest rates faced by households and businesses ... will act to reduce inflation over time."
Even after the news of a ceasefire in the Middle East, global energy prices "remain higher than pre-conflict and have continued to be volatile," the statement said.
INFLATIONARY PRESSURE
Governor Andrew Bailey said that "whatever happens in the future, the higher energy prices of the past four months mean there's already some inflationary pressure in the pipeline."
Still, after a fall in headline May CPI inflation to 2.8%, Bailey wrote in his personal paragraph that "recent inflation outturns give greater confidence that gradual underlying disinflation has continued." (See MNI INTERVIEW:UK Inflation Peaks Year End, Stays High-Sentance)
He also raised the risk posed by excessively restrictive policy.
"Our remit recognises that attempting to bring inflation back to the target too quickly may cause undesirable volatility in output ... tolerating temporarily above-target inflation as part of a return to target is an appropriate way to approach the trade-off, providing inflation expectations remain contained," he said.
According to the minutes of the June meeting, the June Market Participants Survey found median expectations were for a June hold and "thereafter, for Bank Rate to remain unchanged for the year ahead," even as market pricing continues to imply a full hike by year-end.
Households' near-term inflation expectations had "picked up materially" in the Bank's polling with Ipsos, rising from 3.2% in February to 4.0% in May. (See MNI INTERVIEW: UK Inflation Expectations More Loosely Anchored)
SECOND-ROUND RISKS
But Deputy Governor Sarah Breeden said that "the economic environment means the chance of material second-round effects is small," though she remains "committed to acting early and decisively should material second‑round effects become likely."
Clare Lombardelli, another of the BOE's Deputy Governors, said she would react to "signals to indicate inflation would persist above target," but that tighter financial conditions continue "to weigh against the greater inflation pressures," while Swati Dhingra also did not see compelling reasons to move "pre-emptively."
Alan Taylor, who has generally voted for a lower path for Bank Rate than the committee at large, said "the yield curve shows we have tightened a lot just by holding," while "absent mechanical direct and indirect energy effects from the conflict, CPI inflation would have been at target in April.” Deputy Governor for Markets Dave Ramsden said his "reaction function will remain state-contingent on both the development of the conflict, and what that means for the outlook for the economy."
Catherine Mann believed risks tilted to the upside on inflation, but that the committee could react quickly to this materialising, as "research shows that a forceful Bank Rate decision can have a quick effect on inflation and inflation expectations."
On the contrary, Megan Greene said that a "proactive hike now in Bank Rate should help anchor inflation expectations," after referencing a personalised scenario from a recent speech that she used to claim that delaying a hike would risk embedding persistent inflation. Chief Economist Huw Pill, who has consistently voted for higher rates than the committee, voted for "prompt but modest action" to "put the MPC in a good place from which to respond to the evolution of events from here."
Jun-18 14:06
The European Central Bank’s decision last week to hike rates likely leaves Europe trapped with too-tight monetary policy for the next six months, a leading German economist told MNI.
While its impact on the pace of price growth will be limited, the 25-basis-point hike to 2.25% was “really designed to send a psychological signal after they reacted too late to the crisis following the Russian invasion of Ukraine,” he said.
“The correct response would have been to allow fiscal policy to soften the shock and limit its impact directly, as it has been trying to do in Spain, for example, with the reduction of VAT, and to a lesser extent in Germany with the gasoline rebate,” former German Council of Economic Experts member Peter Bofinger said in an interview, calling higher interest rates “a blunt tool.”
The ECB is now likely to fall behind the curve in cutting rates, since such a “huge U-turn” would be to admit it made a mistake, “albeit one that did not do anything to bring down inflation,” Bofinger said.
“The ECB will wait a while before lowering interest rates even if inflation does start to come down rapidly - at least two quarters or so," he said, adding that while the central bank claims 'data-dependent' does not mean data-point-dependent, "it means always waiting, which means you are naturally behind the curve - especially when things are changing rapidly.” (See MNI SOURCES: ECB September Meeting 'Live' Despite Iran Deal)
GERMAN ECONOMY
While the Bundesbank projects that expansionary fiscal policy, particularly from defence spending, will contribute 1.3 percentage points of Germany’s GDP growth from 2026-28, Bofinger said the economy’s main problem remains a lack of private investment.
“So far, we’ve not seen much impact from the government’s economic policy, especially on private investment, which is very weak. Our whole economic policy lacks a strategy; worse, policymakers do not even realise that a strategy is needed,” he said, calling for government, scientific experts and companies to identify the main areas in which Germany can compete strongly in five to 10 years’ time.
“But that is absolutely lacking. Yes, we need less bureaucracy, etcetera, but this microeconomic approach will not succeed,” Bofinger said.
New government incentives which allow companies to offset a greater share of recently-acquired assets as depreciation will be ineffective, Bofinger said, adding that they will also depress tax revenues for the next five years.
“It does not mean that companies will invest more, only that they can continue to invest at the current level. Nor do they have to invest more to qualify for it. If that’s the main instrument, it’s not surprising that companies aren’t investing more in Germany.”
Large German firms are laying off workers - an indicator, Bofinger said, that they do not see production as being limited by a lack of skilled workers, as was the case five years ago, but rather as due to insufficient demand. “Nor do I see how that can be stopped without a change in our business model,” he said.
NO TO PROTECTIONISM
Germany’s reliance on Chinese solar panels and batteries for its energy transformation means it cannot afford to be protectionist, Bofinger said. Instead, it should look to copy China’s own tactic of technological “leap-frogging,” by identifying areas, such as renewable energy, where it can use Chinese products to gain a competitive advantage, while encouraging Chinese companies to build factories in Germany and Europe. (See MNI: EU Action On China Would Cut Off Key Supplies - Advisor)
Bofinger, a member of the special commission that will report later this month on potential pension reforms, said it is “very difficult” to make major savings, with public payouts already lowered in recent years and any further reduction likely to test the legitimacy of the entire scheme.
“Nor do I see that you can save a lot with the health system. Of course, there is a commission which has made certain recommendations, but I doubt that the savings it proposes will be sufficient to fundamentally change the state of our public finances,” he said.
“That is in any case not the main problem right now. It’s our business model. Fix that, and we will be able to deal with the public finances.”
Jun-18 14:04
The Norges Bank’s new guidance that it would likely be "necessary to raise the interest rate somewhat further" incorporates significant uncertainty over oil prices and the U.S.-Iran Memorandum of Understanding, Governor Ida Wolden Bache told MNI.
Speaking after the Bank's Monetary Policy and Financial Stability Committee kept its policy rate unchanged at 4.25%, Wolden Bache said updated forecasts in the quarterly Monetary Policy Report were completed before the MoU was signed, but that little substantive had changed since.
"The interest rate forecast in the report, and our projections more generally, are based on data up until Friday. We had already seen signs of oil prices coming down at that point, but our assessment also at the meeting yesterday was that those movements between the cut-off date and the meeting would not have affected the overall picture to any large extent," she said in an interview.
Her comments echoed those of Riksbank Governor Erik Thedeen, who told MNI on Wednesday that uncertainty persisted despite the Gulf ceasefire. (See MNI INTERVIEW: 50/50 Hike Chances Due To Iran Doubts-Thedeen)
MOVING R-STAR
Norges Bank’s annual assessment of the neutral level of interest rates, r-star, came up with a range between 2.25 and 3.75%, implying that current policy is restrictive but to an uncertain degree. The figure put into the forecast model, r-bar, based on market pricing, was edged lower.
"We have raised the upper part of the interval slightly on the basis of the new analysis. There is a tiny revision to the point forecast which we need to put into the model," Wolden Bache said. "That has not been a major consideration affecting our assessment of the restrictiveness of monetary policy at the current meeting to a significant degree.”
LIQUIDITY AND CDs
Wolden Bache was accompanied in the interview by her executive director markets, Gaute Langeland, who played down market concerns over potential liquidity shortages as Norges Bank aims at an operational target of NOK30-40 billion of fully-renumerated reserves after restructuring its balance sheet and launching a certificates of deposit programme.
The CD programme "will run with a stable volume throughout the year once it's built up to the target, and then you have fluctuations in the aggregate liquidity due to payments to and from the government accounts, which means ... after you take the structural liquidity minus the bills, we end up with something that may be both above and below [the 30-40 billion] target," he said.
Norges Bank will run regular operations and fine tune to steer liquidity to within that target "So I have no worries ...that we do not fit into the range," he said, though he acknowledged an impact on money market pricing.
"The structural liquidity and the banks' position before our operations affect pricing in the money market. So you can see that there is a spillover from structural liquidity, the programme, to money market premiums, but I think we are well within the range where this has any sort of unforeseen results," Langeland added.
Norges Bank aims to fix the overnight-unsecured interbank NOWA rate at the policy rate, he noted.
"We want that to fix at the policy rate, which it does pretty much every day and then there are many premiums that will feed into where the three month money market rate sits. We don't have a target for that, and we think that it's a good thing that it reflects conditions in the money market," he said.
Jun-18 13:13
The Swiss National Bank left its benchmark Policy Rate unchanged at 0% as expected on Thursday and said that it has an increased willingness to intervene in the foreign exchange market “if necessary."
While inflation has risen in recent months as a result of higher energy prices, medium-term inflationary pressure "is virtually unchanged compared with the last monetary policy assessment,” it said in a statement.
"Our monetary policy is appropriate to keep inflation within the range consistent with price stability and it supports economic development. We will continue to monitor the situation and adjust our monetary policy if necessary, in order to ensure price stability," SNB President Martin Schlegel said. (See MNI SNB WATCH: On Hold Despite Modest Inflation Upside)
FOREX
Schlegel told reporters that the Board left its statement on forex intervention little changed, repeating its willingness to "counter a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland."
Asked whether the addition of "if necessary" was meant to lessen the impact of the guidance, Schlegel said it should be read exactly as flagged and no inference taken. "We said 'if necessary', and that is exactly how we mean it."
"Upward pressure on the Swiss franc initially increased with the escalation of the conflict in the Middle East, as the franc was sought after as a safe haven and we therefore increased our willingness to intervene in the foreign exchange market at the beginning of March. As the interest rate differentials with other countries have widened, the Swiss franc has depreciated somewhat. However, the geopolitical situation remains uncertain," he said
"The risk of strong upward pressure thus persists. If necessary, we therefore have an increased willingness to intervene in the foreign exchange market," he reiterated.
The Board recognised that "uncertainty about inflation and economic development is still high and [it] will therefore continue to monitor the situation and adjust our monetary policy if necessary, to ensure appropriate monetary conditions."
INFLATION OUTLOOK
Schlegel said the board had discussed the U.S.-Iran memorandum of understanding which was signed on Wednesday.
"We see inflation to rise over the short term, but think CPI will come down again over the medium term - hence we kept rates unchanged."
"As expected, inflation has risen since the last monetary policy assessment, from 0.1% in February to 0.6% in May. This increase was mainly attributable to higher prices for oil products. The other goods and services made little contribution to the rise in inflation.”
The SNB sees inflation slightly higher in coming quarters, before declining somewhat in the first half of 2027 as the impact of higher energy prices likely eases over time, Schlegel said. The SNB forecast average annual inflation at 0.6% for 2026, 0.6% for 2027 and 0.7% for 2028, based on the assumption that the policy rate is 0% over the entire forecast horizon.
The discount for remuneration on banks’ sight deposits above a threshold was unchanged at 0.25 percentage points.
Jun-18 09:16
China's efforts to strengthen control of overnight interest rates will reduce volatility in interbank funding markets and support a transition toward an overnight-rate-based monetary policy framework like that used by other major central banks, economists told MNI, noting the changes should ultimately lower financing costs in the real economy.
The 20-basis-point narrowing of the short-term interest-rate corridor to 50bp – announced by People's Bank of China Governor Pan Gongsheng Wednesday – will limit fluctuations in overnight rate, reduce funding-rate volatility and stabilise liquidity expectations among financial institutions, said Dong Ximiao, chief economist at Merchants Union Consumer Finance, complementing Pan's plan to narrow the interest-rate corridor by setting the upper and lower bounds of the temporary overnight repo and reverse repo facilities at 25bp above and below the 7-day reverse repo rate.
A more effective framework for managing short-term rates would strengthen the transmission mechanism from policy rates to market rates and ultimately to lending rates, helping reduce financing costs for businesses and households, Dong argued when talking about the planned overnight repurchase facility. (See MNI: PBOC To Reduce OMOs Further, Drain Bond Liquidity)
The latest measures represent another step in the PBOC's shift from managing the quantity of liquidity toward influencing the cost of funds through interest rates, building on a reform blueprint first outlined in June 2024.
Wang Qing, chief macro analyst at Orient Golden Credit Rating International, told MNI that the combination of a benchmark overnight reverse repo facility and a narrower corridor would improve the stability of the DR001 money market overnight rate, strengthening policy transmission along the yield curve and enhancing the effectiveness of price-based monetary policy.
The current short-term rate corridor is centred on the 1.4% 7-day reverse repo rate, with temporary overnight repo and reverse repo rates serving as the lower and upper bounds. Following Pan's announcement, the corridor now ranges from 1.15% to 1.65%, compared with the previous 1.20% to 1.90%.
OVERNIGHT RATE
Ming Ming, chief economist at CITIC Securities, said the planned overnight repurchase tool would likely operate regularly in a manner similar to the existing 7-day reverse repo.
While the rate has not yet been announced, Wang estimated it could be set at 1.3%, or 10bp below the current 1.4% 7-day reverse repo rate. If the overnight rate is eventually designated as the benchmark policy rate, it could replace the 7-day reverse repo rate as the basis for the Loan Prime Rate, he added.
Dong, however, cautioned that the 7-day reverse repo rate will remain the primary policy rate in the near term, as the current corridor continues to be centred on that rate, reinforcing its role as the key policy anchor.
The PBOC stressed that it will conduct operations when primary dealers require funding and when DR001 moves outside the corridor boundaries, underlining its intention to manage short-term rates more actively.
According to Lu Ting, chief China economist at Nomura, the direction of the PBOC's interest-rate framework reform is clear, with China gradually moving toward the simplified structures used by the Federal Reserve, the European Central Bank and the Bank of Japan, centred on a single overnight policy rate and an interest-rate corridor. (See: MNI INTERVIEW: China Property Bailout Would Take 10% Of GDP)
Lu agreed the benchmark policy rate is likely to migrate from the 7-day reverse repo rate toward an overnight rate. He argued that active trading of short-term government securities would provide the PBOC with a vehicle for high-frequency operations and more precise management of overnight funding conditions, allowing policymakers to focus more on interest-rate signals and less on direct liquidity management.
Jun-18 06:54
China's Loan Prime Rate is expected to remain unchanged in June despite mounting second-quarter economic headwinds and amid weakening domestic demand, with economists arguing further rate cuts would do little to stimulate borrowing.
The one-year LPR is expected to be held at 3.0% and the five-year tenor at 3.5% on Monday, marking the 13th consecutive month without change. Both rates were last reduced by 10 basis points in May 2025 after the People's Bank of China cut its benchmark seven-day reverse repo rate by 10bp to 1.4% on May 8, followed by a 50bp reduction in the reserve requirement ratio on May 15, measures largely aimed at countering tariff-related shocks.
Lu Ting, chief China economist at Nomura, expects year-on-year GDP growth to slow to 4.1% in the second quarter, well below market expectations of 4.7% and the 5.0% expansion recorded in the first quarter, but sees little appetite for further monetary easing in the near term. Strong export performance cannot fully offset weak domestic demand, he warned. (See MNI INTERVIEW: China Property Bailout Would Take 10% Of GDP)
China continues to suffer from weak domestic demand, with retail sales falling 0.6% y/y in May, the first contraction since the country emerged from Covid restrictions in late 2022, while fixed-asset investment posted its steepest decline in years and house prices fell at a faster pace. Analysts estimated monthly GDP growth at around 4.2% last month, up from 4.0% in April but still below the pace needed to achieve comfortably the government's annual growth target between 4.5% to 5%.
INTEREST-RATE EFFECTIVENESS
Xiao Geng, associate dean of the School of Public Policy at the Chinese University of Hong Kong, Shenzhen, argued that further interest-rate cuts are becoming less effective because excess capacity and weak confidence mean lower borrowing costs would do little to stimulate investment or consumption. Instead, policymakers should expand the money supply and encourage greater fiscal spending. (See MNI INTERVIEW: PBOC Must Stoke Inflation, Target 4% CPI)
The PBOC should enlarge its balance sheet sufficiently to lift inflation towards 4% over time, helping offset the decline in asset prices caused by China's prolonged period of disinflation, he said.
Household income and wealth expectations remain weak, meaning structural and industrial policies, including measures aimed at boosting consumption, are unlikely to generate strong domestic demand without a larger PBOC balance sheet and a significant increase in treasury issuance, Xiao said. He argued insufficient policy expansion helps explain why previous efforts to stimulate demand have delivered only limited results.
Rather than pursuing aggressive monetary stimulus, policymakers should prioritise stabilising the property sector to pull China out of its deflationary cycle, Lu argued. He estimated that resolving bad debt tied to the property downturn could cost as much as 10% of GDP, requiring considerable political commitment and implementation capacity.
Lu also warned that disinflationary pressures could intensify as artificial intelligence widens wealth disparities between households and regions, further weakening demand and creating additional challenges for policymakers.
Xiao agreed that the central bank should take lessons from the U.S. Federal Reserve and place greater emphasis on inflation rather than focusing excessively on structural issues. While higher commodity prices, including crude oil, have helped lift inflation expectations, the resulting cost-push inflation remains insufficient to revalue assets and restore confidence. At the same time, higher input costs continue to weigh on corporate profitability, he added.
Jun-18 06:35
Kevin Warsh kicked off his tenure as Fed chair Wednesday by cautiously embracing an FOMC that is increasingly thinking about raising interest rates before the end of the year.
Warsh, who during the nomination process suggested interest rates should be lower, is now being forced to chair a committee worried by growing price pressures related in part to the supply shock from the war in Iran.
The Fed’s dot plot showed nine officials wanted to hike rates at least once, six of whom were projecting multiple increases before year end. FOMC members sharply revised up their inflation forecasts of the PCE and core PCE to 3.6% and 3.3% respectively, up from 2.7% in the March Summary of Economic Projections.
“I am happy to report that members of the FOMC are unambiguous and unanimous – this committee will deliver price stability,” Warsh told reporters at his first press conference as chair. (See MNI INTERVIEW: Fed Needs To Signal Ready To Hike-Baumeister)
GUIDANCE PULLBACK
Warsh put his mark on the Fed’s policy statement by putting into practice a more circumspect approach to communication that avoids any hint of forward guidance on rates. He also offered much less detail on his economic and rates views than his predecessors in the press conference.
“Absent also is so-called forward guidance, which we agreed was not well suited to the current policy juncture,” Warsh said.
He also refrained from submitting his own dot to the Summary of Economic Projections, an early effort to move away from what Warsh sees as undue commitments on the future path of policy.
“I did not submit a dot. For me, it’s not helpful to the conduct of policy,” he said. (See MNI INTERVIEW: Warsh Set To Dial Back Fed Guidance - Swanson)
The policy statement affirmed the committee’s desire to return to price stability and nodded to strong productivity growth that could be used to argue that the economy can grow more robustly without generating inflation.
The Fed also reaffirmed its policy of maintaining ample reserves in the banking system. Warsh has called for shrinking the balance sheet significantly over time, but not specifically returning to the pre-crisis framework of scare reserves.
'A TASKFORCE FOR THAT'
Warsh, who promised regime change at the central bank, announced the formation of five task forces focused on communications, the balance sheet, economic data, productivity and jobs, and the Fed’s inflation framework.
He made clear he would not prejudge the outcome of these groups, adding that he would consult the best minds from inside and outside the Fed to guide the recommendations.
Still, he reaffirmed the Fed’s commitment to the 2% target: “I see no reason, until we have reestablished our commitment and ability to deliver on the 2% inflation objective, to revisit that. So that'll be outside the scope of what we're taking on.”
Jun-17 19:22
The Riksbank left its policy rate on hold and raised its quarterly rate projection, with Governor Erik Thedeen assigning a 50/50 probability to a hike or hold going forward.
The Swedish central bank's executive board discussed risks around the proposed Memorandum of Understanding between the U.S. and Iran, Governor Erik Thedeen said in an MNI interview, adding that the decision and guidance reflected the uncertainties around the putative agreement. (See MNI INTERVIEW: 50/50 Hike Chances Due To Iran Doubts-Thedeen)
The Monetary Policy Report's central projection showed Iran war-linked supply shocks pushing down on growth and up on inflation through direct and indirect effects, with the latter expected to add 0.4 percentage points at most next year to the target CPIF, which was still expected to hold below target at 1.7% in 2027 before rising to 2.8% in 2028.
The policy rate was shown edging up to 1.76% in Q3 and to 1.93% in Q2 next year, leaving the question hanging of if and when the first hike will come. Alternative scenarios showed higher and lower inflation profiles, with the latter due to stronger second round and indirect effects from the war.
Jun-17 13:47
Part of the EUR3 billion raised in Greece’s 10-year syndicated bond last week will probably be used to accelerate early repayments of bailout loans, the head of the public debt management agency, Dimitrios Tsakonas, told MNI, adding that the issuance was a strategic move to reinforce its presence in the financial markets.
"We can't disappear from the capital markets," Tsakonas said in an interview, noting that Greece has already covered its financial needs for 2026. "If you are out too long, investors make you pay a premium because they forget about you. Our last issuance was in January, and the next one was expected for the following January."
Part of the EUR3 billion will most probably be used for early repayments, though a final decision will be made by September and will ultimately depend on the country's ability to deliver a substantial fiscal surplus and reach its target of a 137% debt-to-GDP ratio or below, Tsakonas explained.
He noted that Greece does not need such substantial cash reserves, and aims to bring them down to around EUR20 billion by the end of the decade.
"Early repayments are a no-brainer," Tsakonas said. "Given the fact that Greece now has full access to the capital markets, we no longer need to preserve EUR30–40 billion in cash reserves."
BIGGER FISCAL SURPLUS
According to the Medium-Term Fiscal Plan for 2026, the projected fiscal surplus of 2.4% of GDP was revised upward to 2.8% in the national budget due to the carryover effect of stronger fiscal performance in previous years. Tsakonas noted that this figure could likely reach 3.2% of GDP or even higher.
Tsakonas said the country will reach a 100% debt-to-GDP ratio within eight to 10 years based on "conservative assumptions." Over time, he expects rating agencies to upgrade Greece back to the A+ level it held before the financial crisis.
Still, he saw little chance that rating agencies would upgrade Greece's rating to BBB+ or change the outlook to positive in the near future, placing any potential improvement at the end of this year at the earliest, but most likely next year.
"They are expecting to see an impressive debt-to-GDP reduction," Tsakonas said. "My mission is that if we want to improve, we have to accelerate it."
Jun-17 13:37About
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