ECB’s Panetta: Current Scenario Consistent with Normalisation

26 June 2024

By David Barwick and Isabel Teles – HELSINKI (Econostream) – European Central Bank Governing Council member Fabio Panetta on Wednesday said that the macroeconomic scenario allowed for further monetary policy normalisation and called for the ECB not to approach easing too timidly.

In a speech at the 3rd International Monetary Policy Conference of the Bank of Finland, Panetta, who heads Banca d’Italia, said, ‘The current macroeconomic picture is consistent with a normalisation of the monetary stance’, he said.

‘The ECB duly started this process a few weeks ago and, in the baseline scenario, it will pursue it gradually and smoothly’, he said.

The ECB should remain data-dependent during the normalisation process, he said, but ‘without overweighting temporary blips in the data.’

‘There may be sporadic unexpected data points along the way, but the overall course of monetary policy will not change as long as the big picture confirms that we continue to advance towards the target’, he said.

The disinflation process was progressing ‘in line with our expectations’ and its successful completion required the ongoing adjustment of policy rates and prudence in the sense of readiness to respond to shocks, meaning both downside and upside, he said.

In the context of services inflation and labour market strength being ‘possible obstacles’ to the restoration of price stability, Panetta dismissed the last mile narrative.

‘We should certainly remain vigilant’ to these areas, he conceded, but closer inspection revealed that what is needed is ‘nothing more than patience and a careful monitoring of the ongoing disinflation process.’

The ECB’s concern is the overall price level, he argued, ‘not the behaviour of individual components of the price index.’ Moreover, he said, there were ‘reasons to believe that the stickiness in this sector is not abnormal in any way.’

The fact that services inflation remained higher than goods and above the ECB’s target was no surprise either, he said, ‘[H]istorically, it has almost always been the case.’

The confidence in disinflation had grown ‘steadily’, but the outlook for economic activity remained fragile, with GDP projected to grow an average of 1.5% over the next two years, he said.