Governor of the Croatian National Bank (HNB) Ante Žigman stated in an interview with Bloomberg that economic growth could be threatened if inflation is not contained.
European Central Bank (ECB) must bring inflation under control to avoid jeopardizing economic growth, Žigman warned, as reported by HNB.
Žigman gave the interview on the sidelines of the discussion “Monetary policy role with resurgent inflation, weak growth and high public debt,” held on Friday in Dublin as part of the Eurofi seminar.
Given the growth in the second quarter that exceeded expectations, he said, officials must focus on bringing inflation – currently above three percent – back to the target level of two percent. – We really need to pay attention to inflation, which can ultimately jeopardize growth itself – he emphasized.
Žigman believes that the ECB should not focus too much on where exactly the neutral rate is. – It is important for us, and especially for me, that all inflation indicators are under control – he said.
The ECB’s Governing Council last week raised key interest rates for the second time this year by 0.25 percentage points. The interest rate on the deposit facility, which is the primary indicator of the monetary policy character in conditions of large liquidity surpluses, thus rises to 2.50 percent.
Although price growth has increased, Žigman said, it has not yet spilled over into other parts of the economy, and wages remain under control. He dismissed the thesis that the ECB is already in an unfavorable scenario predicted in the latest forecasts.
– For now, it is mostly related to energy and geopolitics, which we know can change in a very short time – he said, adding that other components of inflation remain under control.
Markets will not dictate ECB decisions
When asked about a possible consecutive interest rate hike next month, Žigman said he expects a “very intense discussion” and that the decision “will depend on available data.”
However, he emphasized that investors’ bets on aggressive tightening of monetary policy will not determine the ECB’s next moves.
– Markets always speculate; they have their expectations and their logic. We will not make decisions based on market expectations – Žigman stated.
At the panel “Monetary policy role with resurgent inflation, weak growth and high public debt,” on the sidelines of which Žigman gave the interview to Bloomberg, discussions included possible responses from central banks to inflation shocks that may be of temporary origin but have lasting economic effects, and to what extent these shocks can lead to more persistent inflation.
An interesting discussion was initiated by the question of whether low or even negative real interest rates, abundant liquidity, and large central bank balances still indicate that monetary conditions are still expansionary rather than restrictive, HNB reports.
Governor Žigman emphasized that even in conditions of strong geopolitical instability where energy prices are rising, the goal in the eurozone is clear – to keep inflation at two percent in the medium term, and that in this light, the FED’s interest rate hikes can be viewed.
Alongside Žigman on the panel were Mateusz Szczurek from the IMF, who was also the moderator, as well as speakers from other central banks, Martin Kocher (Austria), Olaf Sleijpen (Netherlands), then Lithuanian Governor Gediminas Šimkus, as well as Johan Van Overtveldt (European Parliament, Budget Committee) and Jacques de Larosière, honorary president of Eurofi.
