ECB Cautions Against Over-Emphasis on Energy Prices in Interest Rate Hikes

European Central Bank (ECB) policymakers are pushing back against market expectations that rising energy prices will trigger more interest rate hikes. According to Reuters, ECB Vice-President Boris Vujcic stated that while oil and gas price increases are a significant factor, they 'cannot be the only factor in determining monetary policy.'

Vujcic warned markets not to over-focus on energy prices as the primary determinant of monetary policy, emphasizing that the ECB will consider multiple economic indicators before making decisions. He noted that persistently high energy prices would not only drive inflation but could also suppress economic growth by reducing household income and dampening public spending.

However, Vujcic said that the eurozone's reliance on natural gas has decreased over the past four years, mitigating the threat of low gas inventories. He added that the eurozone economy has proven stronger than expected, with strong exports and private consumption driving growth.

The ECB raised its policy rates from 2% to 2.50% in June and September, coinciding with its quarterly economic projections update. Vujcic said the pace of increase was still justifiable for the time being but would be adjusted according to conditions. Money markets currently expect the ECB to raise rates three or four more times until the end of next year.