ECB Needs Patience Before Declaring Inflation Win, Vujcic Says

Published: 12/10/2023

Governor Boris Vujčić spoke with Bloomberg´s journalists Jana Randow and Alexander Weber. The interview was published on October 11, 2023.

European Central Bank Governing Council member Boris Vujcic said it’s too soon to declare victory over inflation as key developments in the euro-zone economy will only play out over time.

Data in early 2024 will bring more clarity on wages, which will provide officials with a better — though still not definite — picture of consumer prices, the Croatian official said Wednesday in an interview. That’s despite new quarterly forecasts arriving at the final policy meeting of this year.

“I wouldn’t think that December is when we will be able to say mission accomplished — we have to be more patient,” Vujcic said in Marrakech, Morocco, where the International Monetary Fund is holding its annual meetings.

“More interesting for me will be to see how the data come in in spring of next year, when we’ll have more clarity on labor-market pressures, and particularly wage-growth developments,” he said.

A similar sentiment has previously been expressed by ECB Chief Economist Philip Lane, who said last month that policymakers are “not going to learn everything” on the inflation outlook in 2023. It means officials will probably keep their options open even if analysts and investors don’t expect them to raise interest rates any further.

With borrowing costs likely at their peak, there’s an intensifying debate about whether to lift minimum reserve requirements for lenders, which must currently hold 1% of certain liabilities — mostly customer deposits — at the ECB.

Officials decided in July to no longer remunerate those holdings, and some have said they’d also back increasing how much banks in the euro zone must keep there. Vujcic signaled he’s open to using the tool in more active way.

“When you’re in a situation with huge excess liquidity that was created through unconventional monetary policy, then it might be a useful, and more conventional, tool to use to temporarily sterilize a part of that liquidity,” he said.

Italian Debt

The Croatian central bank chief didn’t express alarm over Italy, whose borrowing costs have risen as Giorgia Meloni’s government revealed that it will only bring its fiscal deficit within European Union limits in 2026.

“The spreads are widening, but not too much,” he said. “If you look at the change of budget projections, it’s something that could have been expected.”

That also means the country currently isn’t a case for the ECB’s crisis tool that it designed last year to rein in excessive moves on euro-area bond markets, he said.

The interview is available on the Bloomberg´s internet site.