ECB’s Vujčić cautions energy prices alone should not drive rate bets

  • ECB Vice President Boris Vujčić cautioned against using energy prices alone to guide interest-rate decisions.
  • The ECB raised its policy rate from 2.0% to 2.50% in two steps, while markets price three or four further hikes by the end of next year.
  • Vujčić said high bond yields pose no financial-stability threat given euro area banks’ strong capitalization and ample liquidity.

Market expectations for further European Central Bank rate increases have risen mainly because higher energy prices are lifting inflation risks, but ECB Vice President Boris Vujčić said policymakers will assess a much broader range of economic indicators. Investors increased their rate-hike bets after the euro zone central bank raised borrowing costs last week, as a widening Middle East conflict pushed up fuel costs. Vujčić warned against treating oil and gas prices as the sole guide for monetary policy, saying persistently high energy costs could also weaken growth by reducing household incomes and spending, particularly after a cold winter that increases heating bills. The euro zone has reduced its reliance on natural gas over the past four years, making low storage levels less threatening than they were when Russia invaded Ukraine in 2022, while exports and private consumption have supported greater-than-expected economic resilience. The ECB raised its policy rate from 2.0% to 2.50% in two steps in June and September, a pace Vujčić said was worth maintaining for the time being, while money markets price three or four additional increases by the end of next year. He also said rising global bond yields, which have reached levels not seen since before the financial crisis, do not threaten financial stability because euro area banks are well capitalized and hold ample liquidity.

The information on this website is generated using AI and we cannot guarantee its accuracy. Please use it as reference information only.