Key points

  • Vujčić said market rate expectations are being driven mainly by higher energy prices, while the ECB uses a broader set of indicators.
  • Persistently expensive energy could lift inflation but also weaken growth by squeezing household income and consumption.
  • He said the ECB's recent pace of tightening is worth maintaining for now, without committing to a fixed future path.

European Central Bank Vice-President Boris Vujčić has cautioned investors against treating higher oil and gas prices as an automatic signal for a long sequence of interest-rate increases. In an interview conducted on September 16 and published by the ECB on September 18, he said energy costs have become the main force behind market pricing for the rate path, but policymakers will judge a wider set of inflation, growth and financial indicators at each meeting.

Energy is not the whole reaction function

The distinction matters because energy shocks work in more than one direction. Costlier fuel can push headline inflation higher quickly, while gas prices can feed through more persistently to household utility bills and business input costs. At the same time, a prolonged shock reduces real disposable income and can curb consumption. Vujčić said that if elevated inflation persists through the autumn and changes household behaviour, the resulting drag on gross domestic product must also enter the policy calculation.

Related reporting: Bank of Japan raises policy rate to 1.25% as yen weakens

A winter test for households and industry

Europe enters the colder months with gas storage below earlier levels, although its energy system is less dependent on gas than during the 2022 crisis. Vujčić pointed to expanded renewable capacity and energy-efficiency investment as buffers. The weather remains an important uncertainty: a harsh winter would raise heating demand and deepen the hit to real incomes, while a milder season would reduce that pressure. Oil, gas and food prices may therefore affect the outlook on different timelines.

The recent rate path

The ECB raised its deposit rate from 2.0% to 2.50% in two moves at projection meetings in June and September. Vujčić said that pace was worth maintaining for the time being, but he stopped short of promising another increase or a fixed schedule. The bank continues to describe decisions as meeting-by-meeting and dependent on incoming evidence rather than forward guidance.

Markets may be pricing a steeper cycle

Reuters reported that money markets were pricing three or four additional increases by the end of 2027, with the next move potentially as early as October. Such expectations would take the deposit rate to 3.25% or 3.50%. ECB President Christine Lagarde reinforced the cautious message at a September 18 news conference in Dublin, saying interest rates do not move in lockstep with energy prices because officials must also consider their impact on growth and consumption.

Bond yields and liquidity tools

Vujčić also addressed the rise in long-term sovereign yields, attributing it to inflation expectations, heavy government and corporate borrowing, and spillovers from other major central banks. He said the recent move did not threaten financial stability because euro-area banks remain well capitalised and liquid. However, he urged governments to maintain fiscal discipline. Separately, he described higher minimum reserve requirements as a simple potential tool for absorbing excess banking-system liquidity, without pre-empting a Governing Council decision.

What remains uncertain

The interview does not close the door to further tightening. Instead, it challenges a one-variable reading of ECB policy. The next decisions will depend on whether energy costs remain elevated, how quickly they pass into broader prices, whether wages and expectations respond, and how much demand weakens. For borrowers, banks and bond investors, the message is that a higher rate path remains possible, but current market pricing is not an ECB commitment.

Sources

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