ECB Will Keep Door Open to More Hikes Once We’ve Reached Terminal Rate, Vujčić Says

12 July 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Once it reaches the terminal rate, the European Central Bank will leave the door open to further rate hikes and is unlikely to announce that the hiking cycle is over, ECB Governing Council member Boris Vujčić said on Wednesday.

In an online seminar organised by LC Macro Advisors, Vujčić, who heads the National Bank of Croatia, said that whilst a change in PEPP guidance was unlikely for the time being, it was not impossible that the ECB might end reinvestments sooner than previously announced.

He did not expect that there would be ‘any clear announcement of where the terminal rate is, given the uncertainties that we are surrounded with’, he said. The end of the ECB’s hiking cycle would be ‘pretty much an open-ended thing’, with the central bank staying ‘in the in the mode where, given what data brings, we can tighten further or be ready further down the road to relax monetary policy if necessary.’

‘Even if we pause, we will say that we are still more data-dependent, and that we might continue to hike if the data and our reading of the data do warrant further hikes’, he added.

Asked whether the ECB’s forward guidance on PEPP reinvestments continuing until the end of 2024 could be ‘moved forward’, he replied: ‘I would say for the time being no. But it's not something which is unimaginable.’

The outlook was ‘still quite uncertain’ for both growth and inflation, he said. ‘I would say that the risks to the outlook are still elevated but are probably more balanced now than they used to be a couple of months ago’, he noted.

In July, ‘bar the unexpected, we can expect the further increase in interest rates’, he said. The outcome of the Governing Council’s September meeting was however ‘very open’, he said.

When making decisions about monetary policy, he said would place ‘more weight on the observables rather than the unobservables’. Recent experience and heightened uncertainty meant that he would pay more attention to credit data and inflation readings, rather than forecasts and surveys.

Hiking at every other meeting was ‘certainly a possibility’ for the ECB, he said.