ECB’s Panetta: Inflation ‘Uncomfortably’ Low over Projection Horizon

15 September, 2020

By David Barwick – FRANKFURT (EconoStream) – Inflation in the euro area will remain ‘uncomfortably’ beneath the European Central Bank’s price stability objective over the medium term, ECB Executive Board member Fabio Panetta said Tuesday.

In remarks prepared for the 24th Economist Roundtable with the Government of Greece, a text of which was made available by the ECB, Panetta said the ECB’s policy measures during the crisis had achieved ‘remarkable’ results, but were ‘not fully satisfactory yet, as price pressures and inflation expectations are expected to remain subdued.’

Indeed, he said, inflation through 2022, the period covered by the ECB’s staff macroeconomic projections, ‘is expected to stay uncomfortably below our aim.’

This implies that authorities ‘need to remain vigilant and carefully assess incoming information, including exchange rate developments’, he said. ‘It is necessary to maintain very favourable liquidity conditions and an ample degree of monetary accommodation for an extended period of time, and in any case for as long as necessary.’

Panetta reiterated the ECB’s willingness to adjust policy as warranted to restore price stability. Echoing recent comments by other Board members, he noted the constraints faced by investment and consumption in an atmosphere of elevated uncertainty, the slowdown of late in the services sector and the preponderance of downside risks.

Turning to Greece, Panetta observed that the economic fallout from the pandemic had ‘added to existing fragilities’, and specifically mentioned the non-performing loan burden on the country’s financial sector.

Although ECB and national measures have enabled Greek corporates to obtain needed funding, he said, domestic SMEs continue to face a high financing gap, implying an ongoing need for policy support.

The Next Generation EU recovery fund represents a chance to boost Greek potential growth, he said. The money from the fund ‘should be channelled into much needed growth-enhancing and job-creating investment projects and should be accompanied by a continuation of the ongoing reform process’, he said.