ECB Governing Council Member Vujcic: In order to cut interest rates in September, inflation must improve

Zhitong Finance learned that Boris Vujcic, a member of the European Central Bank's Governing Council and the Governor of the Croatian National Bank, stated that the ECB's interest rate cut in September will require an improvement in inflation prospects. Vujcic mentioned that although a rate cut in July is not completely ruled out, there will be more data and a series of new forecasts available two months later. Any signs of inflation not reaching the ECB's target in a timely manner will reduce the likelihood of lowering borrowing costs again at that time. Vujcic stated, "To take further action, we need to see more data. Any prolongation of the transition of inflation towards the medium-term target will weaken the rationale for a rate cut, and vice versa."

Earlier in June, the ECB cut rates by 25 basis points. At the time of this decision, forecasts indicated a slight increase in inflation rates over the next two years, making the path towards 2% longer.

Vujcic said, "We will focus on the upcoming data until September. By then, we will have three sets of inflation data, economic activity data, labor market data, and financial market data, as well as new forecasts. July has always been an option, but there will be more data in September. Everything is open at that meeting - pause or continue cutting rates. I don't want to reveal what we want to do until we see more data."

Martins Kazaks, a member of the ECB's Governing Council and the Governor of the Latvijas Banka, expressed a similar stance in another interview. He stated that policymakers must not allow the inflation rate to stay above 2% until 2026. The ECB currently expects to reach this inflation target in the fourth quarter of next year.

Other officials also urged caution. Mario Centeno, the Governor of the Banco de Portugal, stated that inflation will remain stable until August and decisions should be made based on data. Bostjan Vasle, the Governor of the Bank of Slovenia, indicated that interest rates will not be lowered as quickly as they were raised.

Vujcic mentioned that while the overall data of the ECB shows inflation moving towards the target, officials "need to pay special attention to the service sector." He added that they are less tradable, more sensitive to wages, and therefore inflation in this part of the economy "may be more difficult to contain." He said, "The demand for services remains very strong, and the question now is whether we are witnessing a more lasting shift in consumer preferences from goods to services. I don't have the answer now, but we will find it at the right time."

Vujcic pointed out, "The risks facing the inflation outlook may be more balanced than in the past. The likelihood of inflation falling at a faster rate is unlikely, as it may mainly be achieved through goods. The upward risk is the growth momentum of service sector inflation, although we expect it to gradually decline for the remainder of this year." ”