The European Central Bank must push on with monetary-policy tightening while price pressures endure, according to Governing Council member Boris Vujcic.
(Bloomberg) — The European Central Bank must push on with monetary-policy tightening while price pressures endure, according to Governing Council member Boris Vujcic.
“As long as core persists at the levels we’re talking about and this is significantly higher than our rates are and significantly higher than where are target is, we should persevere,” Vucic told Bloomberg Television.
“We should really bring it down to the levels where we need it to be in the medium term,” the Croatian central bank governor, whose country became the euro zone’s 20th member on Jan. 1, said Monday.
With the ECB all but certain to hike by another 50 basis points next month, attention is once again focused on how high it will have to push borrowing costs to regain control of inflation that, while moderating, is still more than four times its 2% target.
February’s reading, due this week, is expected to show a further slowdown in the headline number, but with core price pressures staying stuck at a record. Data last week signaling a resurgence in US inflation have added to the concern.
Central banks globally must remain vigilant until the worst spike in prices in a generation has been defeated, International Monetary Fund Managing Director Kristalina Georgieva said at the weekend, urging them to “stay the course.”
Markets have for some time been boosting bets on where the ECB’s deposit rate, currently 2.5%, will end up. Traders on Monday wagered for the first time that ECB hikes will extend into 2024, suggesting a peak of 3.9%.
“I think this repricing in a way is what we did during our last projections, where we projected basically higher inflation for longer, core inflation which turns out to be stickier than most people probably expected,” Vujcic said.
“Probably markets are now repricing and saying ‘OK, we might see higher rates for maybe longer,’” he said.
Borrowing costs are about to reach levels that restrict the economy, rather than stimulate it, according to Vujcic. On the terminal rate, he said “I don’t think anyone at this point really knows it,” declining to speculate himself.
–With assistance from Reed Landberg.
(Updates with Vujcic comments on market pricing in last three paragraphs.)
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