ECB Insight: Cipollone Speaks on Monetary Policy - No Surprises, but Plenty of Déjà Vu

18 November 2024

By David Barwick – FRANKFURT (Econostream) – On Friday, the public discussion of European Central Bank monetary policy was augmented by a rare intervention from the newest member of the ECB’s Executive Board. Our reaction: déjà vu.

When making public comments, Piero Cipollone, Italy’s contribution to the Board following Fabio Panetta’s departure to become governor of Banca d’Italia a year ago, has mostly stuck to topics like the digital euro and payments. That reflects the distribution of responsibilities among Board members but is perhaps also due to his relative newness.

He has in any case given monetary policy a wide berth; Friday’s speech was but his second of current relevance to the subject, the other one having been nearly eight months ago.

Our déjà vu reaction however does not refer to that earlier intervention as much as it does to his predecessor. A bit of a retrospective will make clear why.

Consider the speech Panetta gave on 14 November 2022. At the time, despite euro area HICP of 10.6%, he was preoccupied with ‘the consequences of possible errors’ in the form of - what else - ‘aggressive tightening’.

Or take his 16 February 2023 intervention, in which he soliloquized about price stability restored ‘at minimal cost to the economy and employment’, fretted – with inflation at 8.6% - about overtightening ‘tipping the economy into a full-scale recession’ and suggested ‘smoothing our policy moves [to] ensure that their cost to the economy is minimal.’

With HICP down to a mere 5.3%, for Panetta it was already time on 3 August 2023 to urge forgoing further rate hikes in the interest of ‘avoiding unnecessary harm to economic activity’, reaching 2% inflation ‘without harming economic activity unnecessarily’, and ‘avoiding unnecessary costs to the economy’.

All of this will ring a bell with anyone who read Cipollone’s speech on Friday. In it, he proposed that the ECB ‘take the medium and long-term effects of an excessively restrictive stance into account’, warned of the ‘medium to long-term negative consequences … if our monetary policy … remained too restrictive for too long’, and argued against ‘imposing more restriction than necessary on the economy’.

Rome, one rightly supposes, is not going to send anyone to the ECB who does not view monetary policy through a prism that effectively elevates economic activity to mandate level. All the rest is merely the most convenient hook on which the usual hat can be hung.

Seen thusly, Cipollone’s latest speech is no more dovish than one would expect. It may even be a little less so, taking into account the relatively benign inflation environment.

Then again, although the ECB is already cutting rates anyway, we assumed long before Friday that Cipollone would be in the camp of those favouring larger steps. Friday’s speech does not contradict that view, to which we say: par for the course.

With 1 November having marked a year since Cipollone joined the ECB, he may now weigh in on monetary policy more often. All indications are that the dovish camp can count on him to argue the case for loosening the reins no less eagerly than his predecessor.