ECB’s Vujčić: ‘Risk of Undershooting Has Now Increased Compared to Six Months Ago’

18 November 2024

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is currently more likely than half a year ago to undershoot its target, but this is natural, ECB Governing Council member Boris Vujčić said Monday.

In a lecture at the London School of Economics, Vujčić, who heads the Croatian National Bank, said, ‘When people say that we might undershoot the target, of course there’s always a risk of undershooting the target. And by definition I would say, by construction, and as we move towards the target, the risk of undershooting the target increases.’

Once at the target, ‘[t]here should be symmetrical risks of overshooting or undershooting’ he continued.

That some people now correctly identify a higher risk of undershooting is thus ‘not something that is unexpected’, he said. ‘Of course, some people always emphasise more one risk or the other risk. … But certainly, the risk of undershooting has now increased compared to six months ago.’

Asked whether central banks were systematically behind inflation risks associated with political developments because of their reluctance to offend political sensibilities, Vujčić objected.

‘I think that the geopolitical risks are very difficult to model, to put in our models’, he said. Central banks naturally thought about the ramifications of political developments, but these were best assessed in scenario analyses, he said.

‘If you’re a hedge fund, you have to bet your money’, he said. ‘If you’re a central bank, you have the luxury to wait and see. On the basis of the incoming data, we decide what we’re going to do next.’