Boris Vujčić: Interview with Reuters

Vujčić, a Governing Council member, restates ECB orthodoxy in a Reuters interview: no forward guidance, meeting-by-meeting, data dependent, with energy now the swing factor for the rate path. Nothing here moves the terminal rate debate much. The tradable content is his pushback on markets pricing several hikes over the next 12 months, which he declines to endorse and offsets with a warning that persistent inflation would erode real incomes and GDP. He also gives a clear preference on the operational framework: raise minimum reserve requirements rather than tier or charge fees on reserves.

What’s new: Mostly confirmation. Markets already know energy is driving the rate path and that the June baseline (Middle East easing, lower energy) has been dropped; he confirms the shift to "elevated for longer" but that is priced. The genuinely new items: an explicit personal preference to lift minimum reserve requirements to sterilise excess liquidity over tiering or fees, and a deliberate refusal to validate the several hikes the curve prices. The financial stability flag on stretched tech valuations and AI-related risks is fresh language but not new information.

KEY FINDINGS

• Asked whether markets pricing several rate hikes over 12 months is justified, he does not endorse it and counters that if inflation stays high it will dampen household incomes and GDP. Caps aggressive front-end hike pricing and argues against pricing the terminal too high.
• He prefers raising minimum reserve requirements to sterilise excess liquidity, saying he would rather do that than charge fees, and that tiering is complicated. Signals a Governing Council appetite to absorb lingering excess liquidity through the framework, a slow structural tightening lever rather than a rate signal.
• He flags the change from June: the baseline expectation of Middle East easing and downward energy adjustment has been replaced by an expectation that energy stays elevated for longer. Validates the hawkish energy-driven repricing already in the curve, so little incremental impulse.
• He attributes the rise in long-term sovereign yields to several structural factors: inflation expectations, terminal-rate repricing, large fiscal deficits and issuance, record corporate supply, and global spillovers from the Fed and BoJ. Frames the long-end selloff as structural rather than a policy problem, and points to fiscal policy as the fix, keeping term premium supply-driven.
• He sees no financial stability threat from higher yields, but names emerging risks in AI-related cybersecurity and operational risk and stretched equity valuations in concentrated tech sectors. A mild valuation caution for equity, not a systemic alarm.

FROM THE DOCUMENT

There is a notable change compared with June and the pre-summer period.

It would not be advisable to focus exclusively on energy prices, however important they are.

I would rather sterilise excess liquidity than charge fees and tiering is quite complicated.

However, new financial stability risks are emerging in areas such as AI-related cybersecurity, AI-related operational risks and stretched equity market valuations, particularly in concentrated tech sectors where global spillover effects are inevitable.