ECB’s Vujčić: Remains to Be Seen Whether Monetary Policy Is Sufficiently Restrictive

25 August 2023

By David Barwick – FRANKFURT (Econostream) – The next spot readings of euro area inflation would indicate whether underlying inflation was really weakening and whether monetary policy was restrictive enough, European Central Bank Governing Council member Boris Vujčić said Friday.

In an interview with Bloomberg, Vujčić, who heads the Croatian National Bank, said that headline inflation had ‘most likely peaked’ and was ‘very slowly’ receding. An economic slowdown was however more evident than an inflation slowdown, he said.

This could be related to strong job markets and wage growth, he said. ‘So, the important thing is to look in the next prints of the data, whether we will really see a softening of the core inflation and inflation moving towards our target’, he said.

Whether monetary policy was sufficiently restrictive ‘remains to be seen’, he said. ‘And this is something that will only [be] seen from the inflation data that will come in in the next prints.’

The ‘main question’ concerned the duration of maximum borrowing costs, he said, suggesting that a higher peak might imply shorter duration.

‘I would say that the sooner we bring the inflation down, the better, and the sooner we bring it down, we will be able to cut sooner’, he said.

Most likely by next spring, the ECB would ‘have a clearer picture of whether we are firmly on the path towards achieving that or we will have to do more’, he said.

Stagflation was a real possibility and ‘the main risk’, he said.

‘I think where we are now is basically something like a stagnation picture’, he said. ‘I don't see a recession at the moment. I mean, when I say that, I think about the real recession, not the technical two quarter data of a very mild decline in the economic activity. So, I still think that the soft landing scenario is achievable.’