ECB Insight: Panetta, Asked to Support Rehn’s Forward Guidance, Wants None of It

26 June 2024

By David Barwick – HELSINKI (Econostream) – European Central Bank Governing Council member Fabio Panetta on Wednesday expressed a surprisingly dim view of his Finnish colleague’s disregard earlier in the day for the ECB’s data-dependent, meeting-by-meeting approach to policymaking.

Asked following his speech at the 3rd International Monetary Policy Conference of the Bank of Finland to endorse the view of Bank of Finland Governor Olli Rehn that there would be two further rate cuts this year, Panetta, who heads Banca d'Italia, rejected such communication with surprising frankness.

‘I think we should not do that’, he said categorically. ‘I think we are in a phase in which there are so many events … that could change the outlook for monetary policy.’

 ‘And what we should not do is try to start a guessing race on how many cuts there will be’, he continued. He himself would therefore not be offering such ‘casual forward guidance’, he said, adding, ‘I could have said “clumsy forward guidance”’.

Rehn, who had spoken just prior to Panetta and remained seated a few metres from his Italian counterpart, felt visibly compelled to offer a weak defence of his prediction of two rate cuts by end-2024, invoking French political turmoil and arguing that he was not actually calling for any particular number of moves.

In an interview with Bloomberg that even the agency had called ‘some of the most explicit remarks from an ECB policymaker on the path for interest rates’, Rehn however had indeed clearly endorsed current market expectations, as discussed by us critically earlier today.

‘If you look at market data, it implies that there would be two more rate cuts so that we would end up at 3.25% by the end of this year and, with the terminal rate — somewhere around 2.25%, 2.50%’, Rehn had observed. These were ‘reasonable expectations’.

For Panetta to so publicly and explicitly rebuke Rehn is unusual. At least in public comments, Council members generally adhere to what former ECB President Jean-Claude Trichet was fond of calling the ‘collegial’ nature of the body, which he also used to refer to as a ‘brotherhood of mutual admiration’.

Panetta's response is all the more uncharacteristic given that Panetta was in effect Rehn’s guest, and that the former would actually have been comfortable with the essence of the latter’s relatively dovish take on the monetary policy outlook.