In an interview, Croatian policymaker Boris Vujcic stated that the European Central Bank (ECB) may reduce interest rates three more times this year, contingent on a rapid decline in underlying inflation. Despite the United States Federal Reserve's cautious approach, Vujcic believes the ECB could proceed with cuts. Market expectations align with this projection.
Vujcic emphasized the necessity for a slowdown in core and services inflation for rate changes to materialize. He noted that the weakening euro enhances inflation by increasing import costs, particularly in energy.
Regarding interest rate guidance, Vujcic advocated against explicit communication, suggesting that the ECB's restrictive monetary policy characterization may need revising soon due to potential rate adjustments. He expressed confidence in the eurozone's economic stability, foreseeing a consumption-led recovery despite weak overall growth.
Vujcic highlighted the increased labor market adaptability as a positive indicator, as some businesses are adjusting working hours instead of resorting to layoffs, potentially bolstering consumer confidence.
As for the future outlook, Vujcic sees no immediate recession risk but also anticipates a gradual recovery rather than a swift upturn.