Governor at informal meeting of the Financial Affairs Council and the Eurofi Financial Forum

Governor Boštjan Vasle is attending the informal meeting of the Economic and Financial Affairs Council (ECOFIN), which is being held in Santiago de Compostela in the scope of the Spain presidency of the Council of the European Union. Ministers and central bank governors are mostly discussing the role and stance of fiscal and monetary policy in the current uncertain economic situation and policy priorities in the light of structural changes.

Alongside the informal ECOFIN meeting, Mr Vasle today also attended the 2023 Eurofi Financial Forum. Together with governors from Latvia, Croatia, Belgium, Portugal and representatives of the IMF and the European Parliament, he participated in the discussion Normalizing monetary policy: way forward. Governor exposed that the current economic situation is complex and unique. Regarding the past monetary and fiscal policy support, he said that measures adopted during the pandemic crisis and related to the Russia's aggression on Ukraine were unconventional and mostly untested and that we do not yet fully understand all their consequences. He added: “Our monetary policy has been normalizing since last year. Nevertheless, the euro area economy has remained − also due to past economic policy support − surprisingly resilient. Unusual strength is also present in the euro area labour market with the record level of employment are historically low unemployment. At the same time, headline inflation has been easing broadly in line with our expectations.”

He expressed his belief that monetary policy, including yesterday's decision, seems to be on track to help bringing inflation back to our target within two years. He added: “For the future rounds of our decision-making, it is crucial what the incoming data will show, especially regarding the core inflation and the labour market. My biggest concern is possible additional increase in the wage growth that could fuel further inflationary pressures.” 

Regarding quantitative tightening (QT), he explained that in the months to come the Governing Council will discuss what further steps are appropriate also regarding the pace of our balance sheet normalization. He added: “My expectations are that current levels of our key interest rates will open more space for discussion on how to proceed with QT, also in the context of already announced revision of our operational framework.”

He elaborated that important steps have been made in normalizing the Eurosystem balance sheet. After its expansion, the Eurosystem last year first ended net asset purchases. In the next phase, the GovC decided to reduce the amount of reinvestments and then to completely terminate APP reinvestments as of July 2023. In addition, past TLTRO-III repayments also contributed significantly to the balance sheet reduction. He concluded that the next months will be a good opportunity to deliberate on the next steps, including more active strategy regarding our QT.