Boris Vujcic, a member of the European Central Bank (ECB) Governing Council, has suggested that further increases in borrowing costs may not be necessary if the economic outlook aligns with the expectations of ECB officials. This viewpoint is consistent with other ECB policymakers who have hinted that the recent increase in the deposit rate to 4% could mark the end of this unique monetary tightening phase.
During an interview on Croatia's N1 TV, Vujcic indicated that if inflation continues to drop as anticipated, there would be no need for additional interest rate hikes. The focus of investors has now shifted towards when the ECB might commence rate cuts.
Vujcic also shared his projections for the inflation rate during the interview. He expects inflation to decrease over the next three months but refrained from making predictions for the following year due to potential disruptions from energy and food prices, climate change, and political factors.
He further commented on how the easing inflation rate would impact the current 4% level. As inflation decreases, this rate will become increasingly restrictive. If inflation falls more rapidly than expected, he believes it would be simpler to lower this rate than to increase it.
Addressing banking sector issues, Vujcic spoke about the current liquidity surplus in deposits, which allows banks to earn interest. He suggested one method of managing this surplus could be by increasing minimum reserve requirements. This move could provide a buffer for banks and help maintain economic stability in uncertain times.
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