Vujčić backs reserve requirements to absorb excess liquidity
European Central Bank Vice-President Boris Vujčić advocated using minimum reserve requirements to absorb excess liquidity in an interview published on September 18, 2026. He also cautioned markets against focusing solely on energy prices when anticipating interest rate decisions.
Energy shocks and sterilisation
Vujčić emphasized that the ECB operates on a meeting-by-meeting basis without forward guidance, noting that monetary policy decisions depend on broader economic data rather than energy prices alone.
While energy costs have stayed elevated due to geopolitical tensions, he pointed out that renewables now cover 50 percent of electricity consumption in Europe after a 15 to 20 percent capacity expansion.
The ECB baseline projections show food inflation gradually increasing to a peak of 3.4 percent in the third quarter of 2027, driven by agricultural drought lag.
On liquidity management, Vujčić described minimum reserve requirements as an effective monetary policy instrument: “I would rather sterilise excess liquidity than charge fees and tiering is quite complicated.”
Integration over deregulation
Ahead of discussions with European finance ministers in Dublin, Vujčić rejected lowering bank capital requirements to boost competitiveness, warning that deregulation could simply trigger share buybacks rather than lending.
He noted that European banks remain well capitalised and profitable, but face structural hurdles competing with US banks in trading due to market fragmentation across 27 national withholding tax regimes.
Completing the banking union and the savings and investments union is essential to ensure unified monetary policy transmission.
Simplicity beats deregulation
Vujčić offers a robust defense of bank capital buffers while pushing for reserve requirements to drain excess liquidity.
His preference for simpler sterilisation tools over complex tiering schemes is pragmatic and operationally sound.
Yet completing the capital markets union remains unrealistic while member states guard national tax regimes.
Source: Boris Vujčić: Interview with Reuters
IN: