Vasle says ECB decisions aimed at stabilising inflation at 2%

Ljubljana – Banka Slovenije Governor Boštjan Vasle commented on Thursday’s decision of the European Central Bank (ECB) to keep key interest rates at a record-low level, while tightening measures against record-high inflation rates, saying that the goal was to stabilise inflation in the medium term at the two-percent target.

The Slovenian central bank governor said in a statement on Friday that members of the ECB General Council had adjusted the monetary policy given the solid economic activity, increasing inflation and growing uncertainty.

“In this way, we will make sure that inflation stabilises at the 2% target in the medium term,” Vasle said, while noting the key points of the ECB General Council.

These are to keep all options open to gradually reduce the monthly net purchases of securities as part of the regular Asset Purchase Programme (APP) and to conclude the purchases in the third quarter, if possible, and to gradually adjust the key interest rates some time after the purchase of securities.

Net purchases of securities as part of the APP in the second quarter will thus be carried out to a lesser extent than it had been announced in December, Vasle said. These will amount to EUR 40 billion in April, EUR 30 billion in May and EUR 20 billion in June.

In light of the increased uncertainty, the ECB also adjusted the timetable for interest rate changes. “By expanding the options for taking action, we have ensured that net purchases will be followed by adjustment of interest rates, but not necessarily very soon, as it had been planned.”

Vasle added that members of the ECB General Council remained ready to adjust all instruments to ensure that inflation stabilises at 2% in the medium term.

He noted that the post-pandemic recovery of economic activity in the eurozone had continued before the Russian military aggression on Ukraine, with the gross domestic product in real terms reaching pre-pandemic levels in the last quarter of 2021.

As the economic recovery continues, a high inflation rate also continues to persist, the central bank governor said, noting that with the rapid rise in energy prices and hold-ups in supply chains, it had reached 5.8% in February.

Vasle expects that Russia’s military aggression will affect economic activity and price trends in the eurozone. The decreasing foreign demand and deteriorating business sentiment will slow down growth somewhat, while higher energy prices will fuel inflation.