ECB’s Panetta Rejects Commitment to 50BP in March, Says Future Hikes Depend Solely on Data
24 January 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Fabio Panetta pushed back on Tuesday against the idea of the ECB issuing any ‘unconditional guidance’ on its policy moves beyond February.
Panetta, who sits on the ECB’s Executive Board, told German business daily Handelsblatt that the ECB should continue to adjust its policy rates in ‘a well-calibrated, non-mechanical way.’
Although his colleagues on the Governing Council have discussed the ECB’s next policy decisions beyond the February meeting in recent days, he refused to be drawn out on the size of future hikes. ‘Guidance unrelated to the economic outlook’, he said, would depart from the ECB’s data-driven approach.
Despite some of the hawks on the Governing Council, such as De Nederlandsche Bank President Klaas Knot, having called for a 50bp hike at the March monetary policy meeting, Panetta said the central bank should ‘reassess the situation’ before taking such a decision.
There is currently ‘too much uncertainty in the economy to unconditionally pre-commit to a specific policy course’, he said.
Asked about the size of the ECB’s next rate hike, he said he would not cite a specific number, labelling it ‘inappropriate’ to publicly discuss the size of future rate moves.
During the ECB’s December press conference, President Christine Lagarde said that the outlook warranted ‘another 50bp rate hike’ at the central bank’s February meeting and ‘possibly at the one after that’. Other Governing Council members, including Banque de France Governor François Villeroy de Galhau and Klaas Knot, have repeated this guidance in recent days.
Panetta warned against excessive tightening, saying that the ECB needed to take time lags in the pass-through of its monetary policy decisions to the real economy into account ‘to avoid having to reverse course’ at some point in the near future.
On the inflation outlook, he said that he saw ‘some good news’ and that there was reason for policymakers to be ‘anxiously optimistic’ as supply shocks start to subside. Wholesale electricity and gas prices had so far declined by more than the ECB assumed they would in December, he said.
Recent developments suggest that the ECB ‘can fend off the risks of second-round effects’, he said.
He also warned that untargeted fiscal measures to tackle the impact of the current energy crisis on households’ energy bills could be inflationary and ‘paradoxically trigger a contractionary monetary policy reaction’.