ECB Insight: Radev’s Neutral Tone Masks Subtle Hierarchy in His Reaction Function

19 January 2026

By Marta Vilar – MADRID (Econostream) – Bulgarian National Bank Governor Dimitar Radev joined the European Central Bank’s Governing Council less than three weeks ago amid close interest in his views. After speaking with him ourselves, his policy instincts remain hard to trace.

Even so, a careful reading of how he frames upside and downside scenarios suggests a hierarchy in his reaction function. Services inflation and wage dynamics sit at the center of his assessment, while other potential disinflationary narratives are treated as conditional, no substitute for evidence on domestic price pressures.

A useful way to read Radev’s remarks in our interview is to separate his assessment of where policy stands today from his description of what might eventually prompt a change.

On the first point, there is little to debate. He characterizes current interest rates as “appropriate,” explicitly ties that judgment to delivering “a timely and sustained return of inflation to 2% over the medium term,” and avoids pre-committing to any future move. He also sets a high-level threshold for action in either direction: a change in stance would require a “clear and material shift in the inflation outlook.”

What matters is how he defines the conditions for change. On the upside, Radev points to “evidence of entrenched inflation persistence,” “particularly in services inflation and wage dynamics,” together with indications that “domestic price pressures are not easing as projected.”

This is not a low bar: “entrenched” implies persistence, not a single surprise.

The downside scenario is expressed in more procedural, checklist-like language. Here, Radev says he would need “sustained and broad-based confirmation that underlying inflation is durably converging below the 2% target across components,” reflecting easing domestic cost pressures and weaker-than-expected demand.

The phrasing is loaded with qualifiers: “sustained,” “broad-based,” and “durably converging” all raise the evidentiary burden.

The contrast can be read as asymmetry, but the safer conclusion is simpler: he describes the downside case as something to be demonstrated broadly and over time, while the upside case is framed as persistence in the sticky domestic channels.

The hierarchy also shows up in his risk framing: risks “appear more balanced,” but uncertainty “remains elevated.” He then spells out the upside with notable granularity: risks are “primarily domestic in nature,” especially the persistence of services inflation, wage developments, and the interaction between wages and profit margins.

On the downside, he cites weaker-than-expected activity and tighter financing conditions. Both are standard disinflationary channels. What stands out is his greater specificity on domestic inflation mechanisms.

That emphasis becomes explicit when, after asserting balance, Radev immediately narrows the focus: “At this stage, developments in services inflation remain central to the overall assessment.”

Even as he insists on balance, he elevates one variable as decisive. There is no parallel move that elevates growth or financing conditions to the same status. This says less about directional bias than about what he needs to be persuaded.

That same caution shows up when Radev addresses arguments that might otherwise push interpretation in a dovish direction. On the potential rerouting of low-priced Chinese goods into Europe, he cautions against drawing conclusions without firm evidence and stresses that any import-driven effects “cannot substitute for evidence on underlying domestic price pressures.”

Likewise, while acknowledging that a stronger euro could provide “some buffering effect” against imported inflation from the US, he warns that this impact should not be “overstated.”

Both points reinforce that domestic price pressures remain his anchor.

His reference to the “strength of monetary transmission” is a key qualifier, preserving optionality if restrictive rates bite harder than expected.

He also says growth risks are tilted to the downside, citing weak external demand and ongoing monetary-policy pass-through, while noting support from real incomes and fiscal policy.

Radev’s downside-growth language is not unique. But he does not treat growth as a stand-alone trigger for action. It matters for policy only insofar as weaker demand and tighter financing conditions feed through to underlying inflation.

The interview ultimately resists easy classification; his tone is scrupulously neutral. Still, beneath the balanced-risk framing, services and wages are decisive, while import and FX stories are treated as secondary and data-dependent.

Whether that reflects a faint hawkish tilt or simply disciplined risk management is open to interpretation. What is clear is what he wants before moving: convincing evidence on domestic services and wages, consistent with monetary transmission.