ECB can move early on rates if inflation falls quickly: Vujcic

FRANKFURT (Reuters) – Euro zone inflation is developing as expected which warrants patience with rate cuts, but policymakers could act quickly if price growth takes an unexpected dive in the coming months, Croatian central bank chief Boris Vujcic told MNI.

The ECB sees inflation oscillating in the 2.5% to 3% range for much of this year and policymakers have said that any talk of a rate cut before crucial first quarter wage data due in May would be premature.

“If we see a faster decline in inflation than we forecast… then of course we can move also earlier, it’s not excluded,” Vujcic, who sits on the ECB’s governing council, told MNI Connect.

“We will definitely want to see the first quarter wage negotiations, where wages will settle,” Vujcic said, referring to data that is published in May.

Vujcic added that the latest inflation data out last week were in line with the ECB’s own projections and he thought risks to the outlook were balanced.

Nevertheless, Vujcic sees March as an important meeting because by then, policymakers will have plenty of new data, new economic projections and will also have the bulk of the first quarter’s wage deals.

Markets now see 143 basis points of rate cuts this year with the first move coming in March or April, to be followed by a 25 basis point cuts at most if not all meetings this year.

This pricing is somewhat detached from the ECB’s own thinking but Vujcic said he was not too concerned by the discrepancy.

(Reporting by Balazs Koranyi; Editing by Andrew Cawthorne)