By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Dimitar Radev said on Tuesday that a more adverse scenario had become likelier and that the ECB would need to respond if the shock proves persistent and feeds through to wages, margins and expectations.

In an interview with Reuters, Radev, who heads the Bulgarian National Bank, said that “[t]he balance of risks has shifted in an unfavorable direction.”

While the baseline scenario remained the ECB’s central reference, he noted that recent energy-related developments and heightened uncertainty had raised the likelihood of a more adverse scenario.

Radev also pointed to changes in inflation dynamics, saying expectations had become more sensitive and suggesting that new shocks could feed through more rapidly than in the past.

“If the shock persists and begins to affect wages, margins and expectations, the cost of inaction would increase,” he said. “In such a situation, acting ​in a timely manner would ⁠be the more prudent course.”

It was too early to say whether the ECB would have sufficient data by the April meeting to take a decision, he said, adding that available information would at least allow for a more concrete and structured policy discussion.

Although the 2022 experience could make consumers more reactive, Radev said that the ECB faced the current shock from a more favorable starting point, with higher interest rates and anchored inflation expectations.

Inflation expectations remained stable for now, and there were no signs of second-round effects yet in the March inflation reading, he said.

 

Related articles: