Vujcic says the ECB should continue to raise interest rates despite public sacrifices – #Vujcic #ECB #continue #raise #interest #rates #public #sacrifices
ZAGREB, 10 February (Reuters) – Europe The Central Bank should raise interest rates after March and even inflation if it goes down and this “sacrifice” should keep them high for a while, even if it becomes difficult to explain to the public, the ECB’s newest policymaker said.
Politicians who have raised rates by 3 percentage points since July, especially inflation as they retreated at a record pace, they began to wonder when and where the fastest tightening cycle in ECB history would end.
But central bank governor Boris Vujcic of Croatia, whose country joined the euro on Jan. 1, says stubborn fundamentals inflation that it is too early to predict the end of interest rate hikes and that it is not worth the price cut by the markets for the beginning of the year. discusses.
Vujcic, a career economist, university professor and head of Croatia’s central bank for the past decade, told Reuters: “We will see more rate moves after March and I will leave the terminal rate issue for later.”
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“Then normally you would hold the rate there for a while until you were sure that inflation was back to where you wanted it to be,” he said.
Seen as a policy hawk like most governors from Europe’s ex-communist east, Vujcic, 58, has already attended ECB meetings for most of 2022 and has another year and a half left in his term.
Vujcic said the ECB could cut its inflation forecasts next month with energy prices falling sharply from their 2022 peak and supply chain constraints easing.
He added that inflation is likely to fall back to 2%, one of the ECB’s 2% targets.
Core inflation in the euro zone could fall below headline inflation in 2023
Still, this is not a signal that the ECB’s work is done, the Croatian argued.
“Due to various factors, headline inflation is likely to fall to 2% much sooner than expected… (this) puts the headline figure sharply below core inflation,” Vujcic said.
But the ECB should see a sustained decline in core inflation, which strips out volatile food and energy prices, as the figure is a more reliable indicator of underlying price pressures and the effectiveness of monetary policy.
The head of the Dutch Central Bank, Klaas Knot, also warned that headline inflation may fall below core prices.
The reason for this is below gas prices are willing to lower the overall rate fairly quickly, while core inflation is proving unexpectedly stubborn due to a number of factors, from wages to the second-cycle effects of past inflation on prices.
Reuters Graphics Reuters Graphics
The problem is that, while the public tends to look at headline inflation, the ECB is not looking at core inflation, given that the final phase of deflation may be the most difficult. prices will also have to follow.
“In this case, monetary policy should be restrictive enough to push down core inflation, which is relatively high sacrifice it is not an easy task because it can mean the ratio,” said Vujcic.
Economists sacrifice the ratio is called the loss suffered to achieve a reduction in the long-term inflation rate.
Inflation is lower when it falls below a high level, and usually increases in the “last mile” of inflation as price increases approach the target.
“If core inflation has already come down, we will have to explain to the public why we are maintaining a restrictive monetary policy stance,” Vujcic said.
A possible good for the ECB newsthe economy appears to have avoided the worst of the recession and the prospects for a soft landing are improving.
Click here for excerpts from this interview.
Reporting by Balazs Koranyi Editing by Tomasz Janowski
Our standards: Thomson Reuters Trust Principles.
2023-02-11 00:21:41
Source – reuters
Translation“24 HOURS”