Frankfurt – In an exclusive interview with Reuters, European Central Bank (ECB) Vice President Boris Vujcic cautioned investors and market watchers not to base expectations of future rate hikes solely on rising energy prices. While the recent surge in oil and gas costs has fueled speculation that the ECB may tighten monetary policy further, Vujcic emphasized that the bank looks at a much wider set of indicators.
Energy prices are only one piece of the puzzle
“The pricing of the interest rate path is being driven mainly by rising energy prices,” Vujcic said, acknowledging the market narrative. “What I want to emphasise is that we do not look solely at energy prices, but at a much broader set of data and criteria when making monetary policy decisions. It would not be advisable to focus exclusively on energy prices, however important they are.”
Potential risks to growth and households
Vujcic, who previously served as governor of Croatia’s central bank before joining the ECB Governing Council in June, warned that persistently high energy costs could not only keep inflation elevated but also squeeze household incomes and dampen consumer spending. A prolonged period of high inflation through the autumn, he noted, would likely weigh on gross domestic product (GDP). A colder winter could exacerbate the situation by raising heating bills for families across the euro zone.
Resilience amid reduced gas dependence
Despite these concerns, Vujcic highlighted the euro area’s improved resilience. Over the past four years, the bloc has reduced its reliance on natural gas, making low storage levels less threatening than they were after Russia’s 2022 invasion of Ukraine. Strong export performance – with many buyers advancing purchases – and solid private consumption have helped the economy exceed earlier expectations.
Current policy stance and future outlook
The ECB raised its policy rate from 2.0% to 2.5% in two steps earlier this year, a pace Vujcic described as worth maintaining “for the time being.” He added that the bank will monitor developments in the coming months and adjust policy as needed. Money markets are pricing in three to four additional hikes by the end of next year, potentially pushing the deposit rate to 3.25% or 3.50%.
Vujcic also warned against over‑reliance on labels such as “restrictive” when assessing interest‑rate levels, urging a focus on the appropriate rate for the given moment.
Liquidity tools and fiscal prudence
Beyond rate policy, Vujcic signalled openness to using bank reserve requirements as a simple, inexpensive way to drain excess liquidity – a legacy of the decade‑long stimulus that now costs euro‑area banks billions in interest payments. He preferred this tool over more complex measures such as tiered rates or fees.
On the fiscal side, Vujcic stressed that responsible government budgeting remains essential. While higher bond yields reflect inflation expectations and borrowing needs, he said well‑capitalised banks and ample liquidity mitigate financial‑stability risks. Nonetheless, “responsible fiscal policy from governments remains an essential part of the puzzle in the long run.”
What this means for local economies
For businesses and families across Europe, Vujcic’s remarks suggest that the ECB will continue to balance inflation control with growth support. By looking beyond energy price spikes, the central bank aims to avoid premature tightening that could hurt credit availability and consumer confidence. Local entrepreneurs, exporters, and households can expect a measured approach that takes into account the broader health of the euro‑zone economy.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
