ECB’s Kažimír: Must Act Preemptively; ECB’s Vasle: Pipeline Pressures Still Very Significant

10 November 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank has to act pre-emptively in an environment featuring almost solely upside inflation risks, Governing Council member Peter Kažimír said Thursday.

In remarks at a panel discussion in Slovenia, Kažimír, who heads the National Bank of Slovakia, said, ‘We have to act preemptively.’

‘Pretty much all the risks are currently tilted to higher inflation’, he said, citing profit pressures, deglobalisation and wage negotiations.

It was possible that there would be ‘even stronger second-round effects on wages’.

Fiscal policy amounted to a further inflation risk, he said, criticising fiscal measures for being ‘far from the transitory and targeted interventions we would like to see.’

Kažimír insisted that the ECB’s ‘price stability mandate requires us to reduce our presence in the market’. This was ‘absolutely vital for our credibility.’

Governing Council member Boštjan Vasle, also on the panel, said that pipeline price pressures in the euro area were ‘still very significant’.

‘We are not at the peak yet’, he said. According to Vasle, who heads the Bank of Slovenia, wage developments were ‘probably not risks anymore’ for inflation, but had actually already materialised.

He called for a ‘further increase of interest rates’, saying that the rise would have to take official borrowing costs ‘beyond the levels which are currently understood as neutral.’

The ECB also needed to unwind its unconventional instruments, he said.