ECB’s Vujčić: Impact of Exchange Rate on Monetary Policy Might Be Higher Than in Past

13 February 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Boris Vujčić said on Thursday that the impact of movements in the exchange rate on monetary policy could have increased from levels of the last few decades.

In an interview with Reuters, Vujčić, who heads the Croatian National Bank, said that ‘[t]he exchange rate is one factor we consider but, at the current level, it’s not something we need to worry about.’

However, this effect might have changed with time, he said.

‘But we know that the pass-through is state-dependent and will be different when inflation is low and when it’s high’, he indicated. ‘So, you can expect that pass-through is higher now than it was over the past twenty years.’

Regarding market expectations of three more rate cuts in 2025, Vujčić described them as ‘not unreasonable’.

‘For those rate cuts to materialise, we need to see a slowdown in core inflation and a slowdown in services inflation’, he said. ‘The next three months will, thus, be very informative in terms of the economic data.’

Given the uncertainty on the tariff front, the ‘only reasonable’ option for central banks was to maintain a wait-and-see approach, he indicated.

As the inflation target got closer in real-time data and in projections, the debate around the terminal rate would intensify, he said.

The discussion about removing the wording on rates being restrictive was approaching and should take place when it is certain that the ECB is no longer in ‘the restrictive zone’, he said.

‘This could already happen at our next meeting, but it will also depend on the incoming data’, he added.