ECB’s Vasle: Probably the Case That We Are Done With Interest Rate Increases

29 September 2023

By David Barwick – SKOPJE (Econostream) – European Central Bank Governing Council member Boštjan Vasle on Friday said that the ECB had probably reached the peak of the current tightening cycle.

In remarks at a conference of the National Bank of the Republic of Macedonia, Vasle, who heads the Bank of Slovenia, said, ‘At the moment, it seems that we are doing quite well, we are seeing some signs of inflation going down, also some first signs of sustainability of this trend, but on the other hand, there are still many uncertainties.’

The uncertainties included food and energy prices, labour market developments in general and wage growth in particular, he said. ‘There is also uncertainty regarding fiscal policy’, he noted.

‘So, it’s probably the case that we are done with interest rate increases, but we are now in the second phase, the duration phase’, he said.

He suggested that some expectations of relatively early rate cuts were probably premature.

‘There are encouraging signs regarding the future trend of inflation but there are also warning signs in terms of what might go wrong’, he said. ‘The fact is that headline inflation is on the right track… It’s also true that core inflation declined a bit…’

Previous ECB rate hikes are ‘providing a significant amount of restrictiveness … The question is how these … are transmitted to the real economy’, he said.

‘We are seeing transmission in the banking sector, which is getting very strong, stronger than in previous inflation episodes, but what is not known at the moment is how the second part of transmission’ is going, he said. ‘These are important questions which will determine … the duration of restrictiveness we are providing at the moment.’

Vasle expressed guarded optimism with regard to economic growth. ‘Now what we are seeing … is moderation of growth…but we are still expecting positive growth in the euro area … so we are not talking about recession, we are talking about lower growth but still positive growth’, he said.