Vujcic Cools Market Bets on Further Rate Hikes Amid Rising Energy Prices

European Central Bank Vice President Boris Vujcic has downplayed market bets on further rate hikes, citing rising energy prices as a primary driver of investor expectations. The ECB increased its policy rate from 2.0% to 2.50% in two steps in June and September, and money markets are pricing another three or four hikes by the end of next year.

Vujcic emphasized that policymakers will consider a broader set of economic indicators when deciding their next moves, rather than solely focusing on oil-and-gas prices. He noted that persistently high energy prices would not only push up inflation but also weaken economic growth by squeezing household incomes and spending.

The ECB has described a rate of more than 2.50% as restrictive, which is curbing economic growth. Vujcic said the ECB should assess what level of interest rates is appropriate at a given point, rather than relying on labels. He also opened the door to raising bank reserve requirements as a means of draining some liquidity.