ECB’s Panetta: Not Far From End of Hiking Cycle

2 June 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Fabio Panetta on Friday said that the ECB was not far from hitting the terminal rate, even if this could not yet be predicted.

In an interview with French daily Le Monde, Panetta said that under current high uncertainty, ‘estimating the terminal rate is challenging’ and monetary policy was set according to the information available at each meeting.

‘I don’t think this is the time to be too hasty in raising rates, given the considerable ground we have already covered’, he said. ‘My intuition suggests that we have not reached the end of our rate-hike cycle, though we’re not far away from it.’

The question will soon be one of how long rates should be kept high rather than one of how high they should go in the first place, he said.

‘There is substantial scope for fighting inflation by keeping rates high for as long as necessary’, he said. ‘We should be resolute yet judicious, with the aim of lowering inflation without unnecessarily harming economic activity.’

Although Europe had so far avoided recession, ‘our monetary tightening will be felt in the coming months’, he said. ‘We cannot rule out the possibility that domestic demand will continue to be weak and that this will translate into a prolonged weakness in economic activity or even a technical recession.’

The chief risks to price stability were ‘the strength of the labour market and firms’ profit strategies, although so far there are no clear indications of a self-sustained wage-price spiral’, he said.

As before, Panetta argued that core inflation was not the appropriate focus, though it would ultimately also decrease, he said. ‘In this respect, yesterday’s figures are encouraging’, he said.

Consumers should ‘not be worried’ by still-high inflation, he said. ‘We will bring inflation back to 2%. In less than a year, we have raised interest rates decisively, from -0.5% to 3.25%, and inflation is falling, as confirmed by yesterday’s data.’