Exclusive: ECB’s Radev: Rate Hikes Would Require Persistent Services Inflation, Wage Growth

19 January 2026

By Marta Vilar – MADRID (Econostream) – Hiking interest rates would require clearer evidence of persistent services inflation and strong wage dynamics, as well as signs that domestic price pressures were failing to ease as projected, according to Dimitar Radev, governor of the Bulgarian National Bank and member of the European Central Bank Governing Council.

In an interview with Econostream on Saturday (see transcript here), Radev said he continued to view the current level of ECB interest rates as “appropriate,” given they remained consistent with a stance that would “deliver a timely and sustained return of inflation to 2% over the medium term, based on the information currently available.”

For the monetary policy stance to change, there would need to be a “clear and material shift in the inflation outlook,” he said.

On the upside, such a shift would require evidence of “entrenched inflation persistence,” particularly in services inflation and wage growth, alongside confirmation that domestic price pressures were not slowing as expected, he said.

On the downside, he said a change in stance would require “sustained and broad-based confirmation that underlying inflation is durably converging below the 2% target across components.”

Inflation risks now appeared more balanced, he said, while stressing that uncertainty remained elevated. Upside risks were mainly linked to the persistence of services inflation, wage growth and the interaction between wages and profit margins, he said. Downside risks stemmed from weaker-than-expected economic growth and tighter financial conditions, he said.

“At this stage, developments in services inflation remain central to the overall assessment,” he added.

Asked whether he was comfortable with market expectations that the next policy move could be a rate hike, Radev declined to comment. Pressed on the possibility of a hike in 2026, he said it would not be appropriate to pre-commit to any policy path this year.

“If the inflation outlook were to deteriorate materially, especially through more pronounced persistence in services inflation and wage dynamics, all options would need to remain on the table,” he said. “Conversely, if disinflation continues to broaden and becomes firmly embedded in underlying measures, that would point in the opposite direction.”

Referring to his assessment in an interview with Econostream last July that wage- and services-driven price pressures were becoming “evident,” Radev said his view had since “become more nuanced,” citing progress in headline inflation toward the 2% target and signs of “some easing in certain underlying measures.”

“At the same time, services inflation has remained relatively persistent, and wage growth continues to be a key determinant of the medium-term outlook,” he said.

The key question now would be if these pressures would continue to ease as expected or would be more persistent than projected, he added.

Radev said that a well-targeted fiscal stimulus from Germany would support Eurozone growth, but noted that its inflationary impact would depend on the design and implementation of the measures.

“Demand-heavy measures in sectors facing capacity constraints could add to inflationary pressures, while investment that raises potential output would be less inflationary over time,” he said. “In any case, much of the impact is likely to materialize with a lag.”

Asked about signs of increased Chinese exports of low-priced goods to Europe, Radev said merely that any assessment would need to be supported by data, including import volumes, goods prices and indicators of price competition.

If such effects were to materialize, they could lead to short-term disinflation in goods prices, he said, but he stressed that services inflation and wage growth would remain decisive over the medium term.

“If import price effects prove stronger or more persistent than assumed, they will be incorporated into the overall assessment, but they cannot substitute for evidence on underlying domestic price pressures,” he said.

Radev said risks to growth remained tilted to the downside, with the key issue now being whether the recovery would become more broad-based while remaining consistent with the return of inflation to target.

If confidence in the Fed’s independence were to weaken, imported inflation from the US could be partly offset by a stronger euro, he said, though he cautioned that such effects should not be overstated.

“A stronger euro would, all else equal, dampen imported inflation, but the net impact would depend on the broader macro-financial environment, including changes in risk premia, global demand, and financial conditions,” he said.