site.btaECB to Act Decisively if Inflation Data Warrants It but Without Pre-commitments - ECB Governing Council Member Radev

The global business and financial news network CNBC on Monday aired an interview from Sofia with Dimitar Radev, member of the European Central Bank (ECB) Governing Council and Governor of the Bulgarian National Bank. In the first part of the interview with CNBC correspondent Annette Weisbach in Frankfurt am Main, Radev said that the current environment is very volatile; the balance of risk is shifting, upside to inflation and downside to growth, the main factors being energy developments and broader geopolitical tensions. The ECB is monitoring the situation closely and is ready to act, he underscored.

Radev noted that the ECB will act decisively based on incoming data about inflation but will remain measured and will not pre-commit. There are some indicators of second-round effects, so the ECB monitors a broad set of indicators very carefully, including commodities, supply bottlenecks, wage developments, and inflation expectations. At the moment, inflation is close to target, expectations are anchored, and interest rates are broadly neutral, Radev specified. "So we start from here and we will see how the inflation evolves and how the data will evolve and decide based on this incoming data," he added. In his view, both inaction or overreaction would be mistakes.

According to him, compared with 2022 Europe is in a much better position to address the challenges ahead. "What remains unchanged in this very volatile environment is our policy objective, price stability, and I do believe that we are well positioned to deliver on it," he commented. 

There was a lot of hope that the euro area will actually go into a year of more economic growth in 2026 and 2027, but the hope is currently kind of fading. This is reflected in ECB's scenarios. The current one is a monitor-closely-and-act mode. "It is very important to coordinate what we are doing on the monetary side and what is going on on the fiscal side," he added.

In the second part of the interview, Radev talked about the effects of introducing the euro in Bulgaria. According to him, the single currency will bring to Bulgaria's economy better financial conditions, stronger investor confidence, no exchange rate risks, and lower transaction costs, among others. "We are very early in the process, but we are already seeing some positive signals coming from the stock exchange or from the investor confidence sentiment. So, these are positive signals, and I am confident that they will evolve over time. Bulgaria also wants to play a role in that whole AI data centre game," he added. In his words, the euro is a framework that will support sustainable convergence, and it is critically important for countries like Bulgaria and beneficial for the region as a whole. 

The support for the euro in Bulgaria is increasing, Radev went on to say. "There are concerns mainly with regard to inflation, and we took these concerns very seriously," he noted. "But there is always a gap between perception and actual data. Our assessment together with the ECB showed that the impact of inflation from the introduction of the euro actually is very, very limited and largely one-off in the range of 0.3 to 0.4 percentage points. Just to give you a flavour, the annual inflation at February 10 prior to the energy shock was 2.1%, broadly in line with the euro area," Radev said. In his words, the process of transitioning to the euro was well organized, and as a result the changeover went very smoothly.