Countdown to April: Panetta Now Unclear; No Longer in Group Assumed to Want to Cut

1 April 2025

By David Barwick – FRANKFURT (Econostream) – Our last member-by-member review of the European Central Bank Governing Council eight days ago included three changes with respect to the tally of two weeks previously, all three tending to support the idea of an April cut.

Looking today at where policymakers stand regarding the April decision to cut or to pause, we must conclude that there has been a change in the opposite direction, with Banca d’Italia Governor Fabio Panetta now in the group of those of unclear inclination.

We don’t think he will inevitably support pausing in 16 days, and remain convinced that he would fundamentally prefer a constellation of circumstances allowing him to support cutting.

However, in keeping with our cautious approach to these reviews, we find that his latest comments - not once but twice within a few days - leave us with little choice but to reassign him. In the FT last week, for example, he wrote that ‘new powerful sources of uncertainty are emerging’, referring to the ‘spectre of tariffs’ and the possibility of a ‘powerful fiscal stimulus.’

Assessing how much policy easing remained appropriate, and when, was ‘extraordinarily complex’, so that the ECB had to remain ‘pragmatic and data-driven’, he wrote.

In a speech yesterday, Panetta called on monetary policy to ‘balance’ the inflation-dampening economic weakness of the region against the ‘growing uncertainty’, which he said originated chiefly in the US and demanded a ‘prudent approach to policy rate cuts.’

Of course a ‘prudent approach’ can mean anything one wants it to, and we have not forgotten that back when the ECB was thinking about when to stop hiking rates, Panetta similarly deemed it time to be ‘prudent in calibrating our monetary policy stance’.

That however was with the stated goal of not ‘harming economic activity unnecessarily’, whereas now Panetta sounds plain unsure.

While we see no reason at this point to make any other changes to the grouping of Governing Council members, we see Panetta’s shift as potentially quite significant. If Panetta, the most dovish of doves, finds the wisdom of cutting anew this month questionable, then others may as well, without necessarily having yet indicated as much or possibly without ever indicating as much before the quiet period starts in 9 days.

It remains so in any case, as we said here before, that ‘much can still happen to make one option or the other the clear choice’.

As usual, we split policymakers into three categories: those probably more likely to support pausing in April, those we would refrain for the moment from classifying, and those probably more likely to support cutting in April.

We wind up with six Governing Council members in the group of those probably more likely to support pausing in April. Another nine are in the group of those we aren’t calling either way, while those we suspect are leaning towards cutting again this month now number ten (the total being 25 because the Bank of Slovenia still lacks a governor).

As last time, we await various potentially decisive developments that don’t rely in the slightest on our tally, including March spot inflation data this morning, the bank lending survey and US President Donald Trump’s tariff announcement tomorrow.

Finally, we must point out once more that our approach implicitly assigns the policy preferences of ECB President Christine Lagarde and Chief Economist Philip Lane a weight equal to that of any other Council member, which abstracts a bit from reality.

Therefore, to repeat, we still regard the below as tentative.

Probably more likely to support pausing in April:

Austrian National Bank Governor Robert Holzmann:

14 March 2025: ‘I am in favour of a possible interest rate pause in April.’

ECB Executive Board member Isabel Schnabel:

08 March 2025: The risk that inflation will remain above 2% longer than expected is higher than the risk that it falls sustainably below 2%.’

Eesti Pank Governor Madis Müller:

07 March 2025: ‘[W]e as central bankers need to be vigilant, as several factors, such as tariffs or the impact of defense spending, could accelerate price increases in the near future. To me, this means that we need to be increasingly cautious about further interest rate cuts.’

National Bank of Belgium Governor Pierre Wunsch:

24 February 2025: ‘I’m not pleading for a pause in April, but we must not sleepwalk to 2% without thinking about it. Let’s keep it open: If the data justify a new cut, we’ll cut. If they don’t, we might have to pause.’

National Bank of Slovakia Governor Peter Kažimír:

10 March 2025: ‘Despite encouraging inflation trends, I am still looking for undeniable confirmation that disinflation will stay. Unfortunately, inflation risks remain tilted to the upside.’

Central Bank of Luxembourg Governor Gaston Reinesch

Too unclear to call:

ECB President Christine Lagarde

31 March 2025: ‘It is a daily struggle. We are almost where we should be, but we have to remain there, so that’s why I say it’s a constant battle. … We are all absolutely determined to arrive at this target, which is a target of 2%. In terms of the path to get there, some want to gallop, to go very fast. Others say let’s do a small trot, let’s wait to see what the obstacles are along the way.’

ECB Chief Economist Philip Lane

Banca d’Italia Governor Fabio Panetta:

31 March 2025: ‘Monetary policy decisions will have to balance two aspects. On the one hand, the weakness of the European economy and geopolitical tensions are curbing consumption and investment, holding down inflation. On the other hand, the growing uncertainty – due above all to the sometimes contradictory announcements on US trade policies – requires a prudent approach to policy rate cuts.’

Dutch National Bank Governor Klaas Knot:

20 March 2025: ‘Can we afford to lower [interest rates]? I remain open-minded, but we do have to think it through, and there is time for that, but there is still too much unfamiliarity in that area. … Policy from the US, which can generate inflation, doesn’t necessarily jump over to the EU, but you can also argue for a story that growth is going to be weaker. It is incredibly difficult to say where interest rates are going to move.’

ECB Executive Board member Frank Elderson

Banco de España Governor José Luis Escrivá:

24 March 2025: ‘Risks to economic growth are tilted to the downside more than the upside … With inflation it is hard, there is uncertainty coming from both directions. … We have never seen such low credibility around the baseline scenario as we are seeing now. It is very hard to define alternative scenarios, in fact risks are two-sided over the baseline scenario.’

Croatian National Bank Governor Boris Vujčić

Central Bank of Cyprus Governor Christodoulos Patsalides

Central Bank of Ireland Governor Gabriel Makhlouf:

24 March 2025: ‘My overall sense is that we’re living in a period of significant change, significant volatility, and the most important thing that we can do is keep a clear head, understand exactly what is happening, and then make a decision on how to respond and start talking about what our view is as to its impact. … We do, however, need to be pretty prudent and pretty cautious about changes to our monetary policy stance when we’re not yet at target and when quite exceptional events are happening around the world, which could have a direct effect on inflation. … I remain careful and cautious about how we’re going to move from our current stance.’

Probably more likely to support cutting in April:

ECB Vice President Luis de Guindos:

16 March 2025: ‘The disinflation process is on track. There was a small pick-up inflation in recent months, but this had been expected, mostly on account of unfavourable base effects in November, December and January. The main reason for our confidence that inflation will come down to 2% is that all indicators for services and underlying inflation are moving in the right direction. A very important one is compensation per employee. According to recent data and in line with our projections, wage growth is moderating, which will help services inflation to gradually decline. At the same time, we need to keep in mind that factors like tariffs and fiscal policy are causing a lot of uncertainty. But taking this into account, we are confident that headline inflation will converge on a sustainable basis towards our 2% medium-term target towards the end of this year or the beginning of next.’

Central Bank of Malta Acting Governor Alexander Demarco:

19 March 2025: ‘Our latest projections show us pretty much on track in achieving our objective, even if reaching 2% has perhaps been pushed out to early 2026 or late 2025. But the revisions of the previous projections were driven entirely by energy prices and the exchange rate, and since then, we've seen important changes in these components, both in the direction of lower price pressures. And maybe there will be effects from tariffs; this is unclear and I am not even sure this will be clear in April. So, for now, we are guided by the projections we have, but if energy prices and the exchange rate remain as they are today, the projections will probably show 2% achieved even earlier. So, I’m not sure it’s the right time to pause, because the evidence still shows us moving in the right direction.’

Banco de Portugal Governor Mario Centeno:

26 March 2025: ‘I don't see any reason so far to deviate from the previous path. The impact of new US policies and higher uncertainty has been revealed faster than expected. The impact is negative on growth and eventually will also be negative on prices, because they are two sides of the same coin.’

Bank of Lithuania Chairman of the Board Gediminas Šimkus:

20 February 2025: ‘Generally, I agree with market expectations that there might be another three cuts between now and the end of 2025. … the direction of travel is clear in a context of weak economic developments and with data showing that we’ve hit our medium-term inflation target. So, I don't see any good reason for policy to stay anywhere far from the interval I described as nominal neutral, which is around 2%. Policy needs to return to this interval around 2%.’

Latvijas Banka Governor Mārtiņš Kazāks:

07 March 2025: ‘If we stay within the baseline scenario, then of course the rate scenario is incorporated in the forecasts. So, of course that can still materialise. The question is how the world will look in April, what will have changed, whether there will be a shift in the outlook that forces a shift in our baseline.’

Banque de France Governor François Villeroy de Galhau:

27 March 2025: ‘The increase of long-term yields, all other things being equal, means a tightening of financial conditions which we have to incorporate in our assessment.’

Bundesbank President Joachim Nagel:

25 February 2025: ‘[P]erhaps I will end up sometime with the conclusion that we're no longer tight. But from today's perspective, I cannot say that.’

Bank of Greece Governor Yannis Stournaras:

21 March 2025: ‘If it was today, I would be more certain that we're going to have a cut, because February inflation was 2.3%, in line with our path, and the materialisation of our forecast also depends on bringing down interest rates more. Also, data from 4Q show wage growth decelerating. Services inflation is down. Core inflation is also down. Everything points in the direction of a cut in April.’

ECB Executive Board member Piero Cipollone:

24 March 2025: ‘At the time of our March meeting, markets were pricing in a reduction in interest rates over the coming months, including going below 2%, with rates stabilising around that level. To produce our macroeconomic projections we take as given the rate path being priced in by markets and, despite rates being on a downward trajectory, the projections showed inflation converging towards our target at the beginning of 2026, with slightly weaker growth. Since then, not only has this narrative been confirmed, but key issues have arisen that have strengthened the arguments in favour of continuing to lower rates.’

Bank of Finland Governor Olli Rehn:

18 March 2025: ‘Wage inflation has largely decelerated, and forward-looking wage indicators point to a clear slowdown in wage growth. Most measures of core inflation − which excludes energy and food prices − also point to a sustained convergence of inflation around the 2% target over the medium term.’