ECB/Panetta: Small interest rate cuts could offset weak demand
Member of the Governing Council of the European Central Bank and President of the Italian Central Bank, Fabio Panetta, said that the European Central Bank’s timely and small interest rate cuts could offset weak demand.
European Central Bank Governing Council Member Fabio Panetta warned that a return to ultra-low interest rates may be necessary if interest rates are not reduced soon.
The President of the Italian Central Bank said that the Eurozone economy should gain new impetus from monetary policy easing, which would reduce the risk of falling below the 2 percent inflation target. He said that the Fed’s lack of relaxation should not pose any obstacle for the European Central Bank (ECB).
“If the recession persists and inflation expectations fall below target, unnecessary delays could bring us uncomfortably close to the effective lower bound at a later stage,” Panetta said in Frankfurt on Thursday. “Timely action will allow the ECB to be agile and act in small, progressive steps.” “Small interest rate cuts can offset weak demand and can be stopped at no cost if upward shocks to inflation occur,” he said.
As inflation recedes and the European economy struggles, European Central Bank policymakers are on the brink of cutting interest rates for the first time since 2019. But whether further cuts will follow the first step, planned for June, is a source of disagreement.
Bundesbank President Joachim Nagel said this week that officials cannot commit to a specific interest rate and that the move in June does not necessarily mean more will follow. He and other hawks are especially concerned about the knock-on effects of rising tensions in the Middle East on energy and inflation.