The European Central Bank is unlikely to increase its interest rate in its upcoming session, according to the most recent economic indicators. Constantinos Herodotou, Governor of the Central Bank of Cyprus and a member of the ECB's Executive Board, conveyed this sentiment in a recent interview.

Mr. Herodotou shared these insights ahead of the ECB's monetary policy meeting on October 26th in Athens. He reiterated the ECB's primary mission: maintaining price stability, which translates to an inflation rate target of 2%.

In past years, the ECB adopted an absolute easing stance to stimulate economic growth and address crises within the euro zone. However, it has since transitioned to a neutral approach and entered a cycle focused on controlling inflation. Such unchecked inflation could negatively impact both households and businesses.

To illustrate this transition, Mr. Herodotou pointed out that since July 2022, the ECB has implemented ten consecutive interest rate hikes, resulting in a 450 basis point increase in its base rates.

"After the most recent rate hike in September, current economic data suggests that maintaining these rates will likely bring inflation back to the target 2% over the medium term," Herodotou stated.

However, he highlighted the significance of continually assessing new data, drawing attention to developments in the Middle East. Beyond the immediate humanitarian concerns and loss of life, the potential economic ramifications of these events should not be underestimated.

Mr. Herodotou emphasized, "It would be prudent, given the current economic indicators, not to anticipate an interest rate hike in the upcoming October session." He stressed that the ECB always grounds its monetary policy decisions in sound economic data.

On the topic of the ECB's decision-making process, Herodotou mentioned that the bank examines three key criteria: the inflation outlook from incoming data, the dynamics of core inflation, and the efficacy of monetary policy transmission.

In response to questions about the euro-dollar exchange rate, which isn't explicitly under the ECB's purview, Herodotou said the bank examines every factor that might influence the three key criteria. "Although we don't aim to set the euro's exchange rate, its impact on inflation is undeniable and is considered in our assessments," he clarified.

In closing, Mr. Herodotou underscored the importance of coordinating fiscal and monetary policies to ensure the successful transmission of monetary strategies. He advocated for targeted assistance to vulnerable households and stressed the inflationary risks of broad measures that affect the entire population.