The European Central Bank (ECB) will soon need to start cutting interest rates, according to Governing Council member Fabio Panetta.
“Macroeconomic conditions suggest that disinflation is at an advanced stage, and progress toward the 2 percent target continues to be rapid,” he said on Saturday at the annual Assiom Forex event in Genoa. “The time for reversal of the monetary policy stance is fast approaching.”
ECB officials are preparing to loosen policy this year — probably from April or June — with investors leaning toward the earlier of the two. The outcome will hinge on inflation, which has plunged over recent months but isn’t expected to meet the 2 percent target again until next year.
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“There has been no upward de-anchoring of inflation expectations — if anything downside risks are emerging,” Panetta said. “Concerns about the hypothesis of persistently high core inflation have also proven groundless.”
Several policymakers have suggested wage increases could feed through to consumer-price growth and the ECB needs to wait for those data. The dovish Italian central bank chief said such a threat is exaggerated.
“The risk remains that still strong nominal wage growth could reignite inflation,” Panetta said.
He also warned against delaying a move too much.
“If monetary policy were to take too long to accompany the ongoing disinflation, downside risks to inflation could emerge that would conflict with the symmetrical nature of the objective set by the ECB’s Governing Council,” he said.
Across the Atlantic, US Federal Reserve Bank of Dallas President Lorie Logan said she sees no urgency to cut interest rates right now, adding that policymakers have time to assess incoming economic data.
The comments are similar to those made by other policymakers, including Fed Chair Jerome Powell, who have indicated they are in no rush to start lowering rates. Policymakers have left rates unchanged since July last year and have signaled that the next move is likely a cut.
In separate comments on Friday, Atlanta Fed President Raphael Bostic said the central bank must ensure inflation returns to its 2 percent target, emphasizing a need to “stay the course.”
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