Transcript: Interview with Bulgarian National Bank Governor Dimitar Radev

15 July 2025

By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 14 July 2025 with Dimitar Radev, governor of the Bulgarian National Bank and - following Bulgaria's planned adoption of the euro on January 1, 2026 - soon-to-be European Central Bank Governing Council member.

Q: Governor Radev, do you agree that euro area interest rates should not be lowered further?

A: I would not want to pre-judge the Governing Council’s future decisions, especially ahead of formally assuming my responsibilities. That said, from an external perspective, I believe the ECB has taken a prudent course. The June 2025 adjustment was carefully calibrated, and any further steps should remain firmly data-dependent. Given the current inflation outlook, I share the view that the threshold for additional rate cuts should remain high.

Q: How likely do you think it is that the projected inflation undershoot in the Eurozone could prove more persistent than expected?

A: Inflation forecasting remains subject to considerable uncertainty. A temporary undershoot cannot be ruled out based on current data, but underlying pressures—particularly from wages and services—remain evident. From a forward-looking perspective, the risk of persistence must be carefully weighed against the progress already made in anchoring inflation expectations.

Q: Do you see a risk that downside pressures on growth could intensify further?

A: Looking ahead, the euro area faces several downside risks to growth, including global uncertainty and geopolitical tensions. One area that warrants particular attention is fiscal policy. As pandemic-related support measures are gradually phased out, the focus should shift to rebuilding fiscal buffers in a credible and growth-friendly manner. Delays or a lack of coordination with the monetary stance could undermine investor confidence and amplify downside risks. This is further complicated by the growing pressure for higher defence spending, which—while necessary—could constrain fiscal space and make the policy trade-offs more challenging. Ensuring policy alignment will be essential for safeguarding macroeconomic stability.

Q: How worried are you about the recent surge in the exchange rate and its impact on inflation?

A: The exchange rate is an important transmission channel, and significant movements can affect inflation dynamics. That said, the ECB does not target the exchange rate, and I fully support that principle. As long as developments remain orderly and reflect economic fundamentals, their impact on inflation should remain contained. Naturally, such developments should be monitored closely in the context of our price stability mandate.

Q: Do you agree with Vice President Luis de Guindos that a euro above $1.20 would be problematic?

A: Vice President de Guindos has rightly emphasised the need to monitor exchange rate developments, especially when they may influence inflation and financing conditions. While I would refrain from commenting on specific thresholds, I fully share the view that significant or disorderly movements warrant close scrutiny. What ultimately matters is that exchange rate dynamics remain consistent with the ECB’s price stability objective.

Q: Is the ECB already in accommodative territory?

A: At this stage, and particularly from an external position, I would be cautious in making definitive judgments about the precise calibration of the policy stance. The June adjustment has clearly shifted the stance, but whether we are still in restrictive territory or approaching neutral requires ongoing assessment in light of the latest data and inflation dynamics. What is essential is that the monetary stance remains consistent with the price stability objective. In any case, such assessments should be anchored in the forward-looking and data-dependent nature of the ECB’s framework.

Q: What in your view should drive the ECB into accommodative territory?

A: A move into accommodative territory would, in principle, require clear and sustained evidence that inflation is firmly converging to the target and that the balance of risks has shifted decisively to the downside. Given the current uncertainty and the complexity of transmission channels, any such transition—if warranted—should be approached with prudence and based on a comprehensive reading of the data. I would expect such a move to be gradual and clearly communicated, in line with the ECB’s strategy.

Q: Do you agree with some of your colleagues at the ECB Governing Council that the inflationary impact of tariffs in the medium term could be underestimated in the latest projections?

A: From an external vantage point, I believe the risks associated with protectionism and trade fragmentation are real and merit careful consideration in any forward-looking assessment. The impact of tariffs may not be immediate, but over time they can affect production costs, supply chains, and ultimately inflation. These are structural factors that I would expect to be part of the medium-term risk analysis.

Q: How big of a threat do you think trade diversion of inexpensive Chinese goods is for Eurozone inflation?

A: There may be a disinflationary impact in certain product categories from the diversion of low-cost imports, but the overall effect on euro area inflation remains modest for the time being. Whether such trends become structural will depend on a range of geopolitical and economic developments. I would place this issue within a broader framework of analyzing the long-term implications of global supply chain adjustments for price stability.

Q: You have recently said that you lead one of ‘the more conservative central banks’ and that you have ‘no intention of revisiting that stance.’ What do you mean by ‘conservative’?

A: By ‘conservative’, I refer to a policy orientation grounded in stability, discipline, and institutional credibility. It means maintaining consistency, resisting short-term pressures, and upholding a strong commitment to the price stability objective. These principles are fully compatible with the ECB’s mandate, and I intend to carry them with me in my future role.

Q: Would you say your views are more closely aligned with the stricter conservative stance of colleagues like Isabel Schnabel, or with the more moderate tone of policymakers such as Pierre Wunsch or Joachim Nagel?

A: Once part of the Governing Council, I intend to engage with all colleagues in a spirit of mutual respect and openness to diverse perspectives. That said, I come from a tradition that values prudence, data-dependence, and a strong anti-inflationary bias. My views are guided not by labels or categories, but by the overarching responsibility to deliver on our price stability mandate.

Q: Given high Bulgarian inflation, are you eager to see the process of policy tightening begin?

A: Bulgarian inflation is elevated, but within the price stability criteria. Furthermore, Bulgaria operates under a currency board arrangement, which means that monetary policy is effectively imported from the euro area. As a central bank, we further reinforce the transmission by, for example, increasing the minimum reserve requirements for banks, currently set at 12%. While inflation has moderated, managing it in this context requires complementary efforts through consistent fiscal policy, structural reforms, and credible institutions. We have made substantial progress in these areas. As we move toward euro area accession, the focus naturally shifts from national to European instruments—and my role will evolve accordingly.

Q: Until January 1, what are the biggest risks you see during the transition period, particularly in terms of price stability and inflation expectations?

A: Transitions of this scale inevitably carry risks, particularly around public expectations. If perceived price adjustments are not well managed, even temporary shocks can influence medium-term inflation expectations. That is why we have prioritised transparency, timely communication, and strong institutional coordination. Preserving public trust and credibility throughout the transition is of paramount importance.

Q: Given Bulgaria’s recent inflation trends, how confident are you that convergence will remain sustainable going into euro adoption?

A: Convergence is not a static benchmark—it is a continuous process that must be maintained and reinforced over time. Bulgaria has made tangible progress, but ensuring sustainability will require ongoing fiscal prudence, effective absorption of EU funds, and a competitive business environment. I am confident that, with the right policies, convergence will remain robust as Bulgaria enters the euro area.