By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice-President Boris Vujčić said in an interview published Friday that there was value for the time being in maintaining the ECB’s gradual approach to monetary policy tightening, while stressing that future decisions would depend on incoming data.

Vujčić told Reuters that energy prices had continued to rise and were now expected to remain elevated for longer than assumed before the summer, but cautioned against focusing exclusively on energy when assessing the appropriate interest-rate path.

Asked whether uncertainty argued for a gradual approach to tightening, Vujčić said: “That’s what we have been doing so far. We had two rate increases at projection meetings. We will see what happens in the coming months and adjust policy accordingly.”

Asked whether there was value in maintaining that pace, he replied: “For the time being, yes. But we will see what tomorrow brings.”

Vujčić said energy prices had already moved higher by the time of last week’s Governing Council meeting compared with the cut-off date for the ECB’s latest projections, and that markets had become highly sensitive to energy developments.

“There is a notable change compared with June and the pre-summer period,” he said. “The expectation now is that energy prices will stay elevated for longer.”

He said geopolitical uncertainty remained high and that the ECB would continue to react meeting by meeting.

Vujčić cautioned that policymakers considered a much broader set of data than energy prices alone when setting rates.

“It would not be advisable to focus exclusively on energy prices, however important they are,” he said.

Asked about market pricing for several further rate increases over the next 12 months, Vujčić declined to endorse or reject that view, saying markets had to price assets but warning that persistently high inflation would also weigh on household incomes, consumption and growth.

“If inflation remains high through the autumn and affects household incomes and consumer behavior, that will also have a dampening impact on GDP,” he said.

Vujčić said the euro area economy had so far absorbed the tightening well and shown resilience to both higher interest rates and geopolitical shocks, while monetary transmission was already clearly under way through higher mortgage, corporate lending and bank funding costs.

On whether rates above the current 2.50% deposit rate would move policy into restrictive territory, Vujčić declined to put weight on such labels.

“I do not like to focus too much on labels such as ‘neutral’ or ‘restrictive’,” he said. “We need to assess what level of interest rates is appropriate at a given point in time rather than concentrate on definitions.”

Vujčić said the recent rise in sovereign bond yields did not pose a threat to financial stability, although market yields would feed into the ECB’s assessment of financial conditions and the policy stance.

He also said minimum reserve requirements remained a useful monetary policy tool for absorbing excess liquidity, indicating a preference for that approach over charging fees on reserves or using tiering.

“I would rather sterilise excess liquidity than charge fees and tiering is quite complicated,” Vujčić said.