Appearing on ETV politics head-to-head show "Esimene stuudio" Wednesday evening, Müller added that he considers Estonia's economic situation, however, to be in mediocre shape. As energy prices fall, inflation may fall more quickly than anticipated – which on the face of it may seem desirable but which in fact points to a poor economic situation.

Despite the two recent bank collapses in the U.S. and Switzerland, Müller said, there is no reason to believe the world is on the verge of a major banking crisis, since the recent issues relate to specific banks' business models and also the weaker regulation imposed on smaller banks in America.

"In general, I feel quite confident about banks within the Eurozone, about Estonian banks, too" Müller said.

Speaking about the recent SVB and Credit Suisse collapses, he said: "Silicon Valley Bank (SVB) faced two problems. First, their business model was very specific, focused on serving high-growth, young tech companies. The bank had grown very rapidly, and had taken on very large risks on to their balance sheet, essentially meaning they were not prepared for interest rate rises."

"That's what really did for them," he added.

In respect of Credit Suisse, the other collapse, that bank's issues have been going on for years, Müller noted. 

"Last week, when one of their important shareholders expressed some hesitation about whether they would be investing any more money with this bank, the result was great anxiety. Ultimately, the crisis in this case was also resolved by the Swiss central bank, and by regulators and government."

According to Müller, compared with the situation 15 years ago, banks generally are much stronger financially, the requirements imposed on banks are stricter and supervision is stronger.

"Speaking, for example, about the risk of interest rate increases, last week, the head of the banking supervision at the European Central Bank (ECB) confirmed that they had focused throughout last year on testing how well European banks are prepared for all potential interest rate increase scenarios. He also said that he feels feel quite sure about this transpiring," Müller said.

The duration of the impact already affecting banking sector will depend on whether it spreads further or not, Müller went on. "For example, in the case of the large Swiss bank, there was a risk that other banks, which have conducted many transactions with a bank in difficulty, might be exposed to risks by doing so This has also been looked into now, however, and I think that this anxiety could gradually subside now."

Interest rate hikes from central banks have not ended

The U.S. Federal Reserve announced another interest rate hike on Wednesday. In Müller's view, this sends the message that the Federal Reserve continues to place the highest priority on getting price inflation under control.

According to Müller, regulatory tools must be installed which would resolve banking issues, and, since the main goal of sovereign central banks is currently to monitor price increases, Europe should not hesitate to fulfill this task itself, and raise interest rates further.

"This is the most important thing today, so that inflation can be brought under control. Both in the eurozone and in Estonia," Müller said.

Interest rates have been put up very quickly, and, according to Müller, it is now a good time to analyze how these increases so far have made their effects known. This will have to be assessed on the basis of the forthcoming economic indicators, which will become clear ahead the next ECB meeting, in May, Müller added.

"In a situation where inflation is too rapid, there are no pleasant solutions."

"Boosting interest rates cools the economy to some extent, our goal is not to cool the economy too much, but for the time being so that the price increase slows down."

Looking at the Eurozone's current economy, the trend for a rise in interest rates is not yet finished. The latest economic forecasts also assume that interest rates will continue to rise, he said. "Today, it is considered likely on the financial markets that interest rates could rise by, for example, half a percentage point, in the coming months," Müller said.

State budget situation improving due to rising tax revenues

The main input into last year's rapid inflation was the similarly rapid rise in energy prices. 

However, Müller says, food prices in stores also continue to rise, as last year's energy-price-driver inflation has not yet been fully passed on to the input prices of many food producers' goods.

Müller called price levels in Estonia not having risen significantly since last August a significant thing. "The problem is that the price levels are still high, but people's incomes have not kept up at the same pace. Now, for the next, almost half a year, when people's incomes will be rising, their purchasing power will gradually be improving again," he said.

Müller: Major part of the Euribor rise also behind us now

"As a central bank, we also see that we have, as it were, to choose between the lesser of two evils. A rise in interest rates is of course unpleasant for people, but even more unpleasant and with a worse effect on the economy as a whole would be a rate of inflation we could not control. Choosing between these two unappealing things, we will see a reasonable inflation cool down, with a [further] rise in interest rates," said Müller.

With reference to banks' statistics, there are very few people who cannot pay off their loan repayments, he added, meaning there is not much to be concerned about with the prospect of people being unable to service their loans.

According to Müller, in the case of the state's finances, meanwhile, it is vital to keep in mind that with the rapid rise in prices, the tax take also grew similarly rapidly, so the state's budgetary situation seemingly improved quickly, too.

However, this was a false dawn, Müller said.

"It's really a mirage, it's temporary," he said.

The cost of borrowing money has also become more expensive to the government. "Interest rate costs may become a very important line of expenditure within Estonia's annual state budget as well. If the state permanently spends more than it takes in in tax revenues, it also increases its debt burden – and thus it also creates a situation where it is difficult to control inflation. The government in effect constantly pumps more money into the economy [by borrowing]," he went on.

The Bank of Estonia is due to present its fresh economic forecast next week.

On this, Müller said: "In my estimation, the overall picture with the Estonian economy is one of mediocrity. In terms of inflation, which has been at the center of attention thus far, it is likely that price increases will slow down at a greater rate than we had thought some time ago. This is precisely due to the fact that energy prices have fallen so quickly."

Next week, Eesti Pank will present a new economic forecast. "I would say that the overall situation of the Estonian economy is mediocre. In terms of the price increase, which has been in the center of attention so far, it is likely that the price increase will also slow down a little faster than we thought a while ago. This is precisely because energy prices have fallen quickly," Müller added.

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