By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Ante Žigman on Thursday said a decision on a possible interest rate increase could come as early as the ECB’s next meeting, while describing a gradual tightening of monetary policy as appropriate.

“In the period ahead, when we will have more data available, we will be able to make a well-founded decision on a possible increase in interest rates, which we expect as early as the next meeting,” the Croatian National Bank governor said in a video posted by the HNB on LinkedIn following Thursday’s Governing Council meeting.

The Governing Council left the deposit rate unchanged at 2.50% on Thursday, but Žigman said the energy shock was lasting longer than expected and that the euro area was now in the adverse scenario envisaged in the ECB’s latest projections.

“The duration of the energy shock is longer than expected, and we are in the adverse scenario according to the latest projections,” he said.

Žigman said the continued rise in energy prices created risks of a further increase in inflation and weakened the outlook for euro area growth, although underlying inflation remained stable and subsequent inflationary pressures were still subdued.

He said tighter financial conditions were also weighing on the outlook, pointing to higher bond yields and falling stock prices.

“The situation on the financial market has tightened further, which is evident through higher bond yields and falling stock prices,” Žigman said.

Against that background, he said the ECB’s gradual approach to tightening was appropriate.

“This approach of gradually raising interest rates is a step in the right direction, because it leaves us well positioned for further decisions,” he said.

Žigman stressed that the ECB remained focused on stabilizing inflation at 2% over the medium term and would continue to base its decisions on incoming data.

“Above all, interest rate decisions will be made on the basis of the assessment of expected inflation developments and the risk environment,” he said.

Žigman also said economic activity remained positive in both the euro area and Croatia, with unemployment still low, while warning that prolonged conflicts in the Middle East and Ukraine posed downside risks to growth.

He said the HNB expected the Croatian economy to grow around 2.5% this year, roughly three times the pace of the rest of the euro area.