ECB’s Panetta: ‘Previous Cuts Clearly Leave Less Room for Reducing Rates Further’

30 May 2025

By Marta Vilar – ROME (Econostream) – European Central Bank Governing Council member Fabio Panetta said on Friday that the ECB would not be able to cut interest rates much further given previous easing.

In concluding remarks at the presentation of the 2024 Annual Report of the Banca d’Italia, which he heads, Panetta said that disinflation now was ‘close to completion’ and ECB interest rate cuts were ‘feeding into financial conditions and will support economic activity over the next few months.’

Panetta acknowledged that the following monetary policy decisions would be hard but would be taken on a data-dependent, meeting-by-meeting basis and would take into consideration the outlook for inflation and growth.

‘The previous cuts clearly leave less room for reducing interest rates further’ he said. ‘However, the macroeconomic outlook remains weak and trade tensions could cause it to deteriorate, though it is hard to say how and when that might play out.’

It was crucial that the ECB stick to a ‘pragmatic and flexible approach’ while keeping a close eye on liquidity conditions and financial and credit markets, according to Panetta.

Inflation could decline further given the weak economic outlook, intense global competition, the euro appreciation and the fall of energy prices, he said.

‘A further appreciation of the euro, growing uncertainty or tighter financial conditions could magnify the recessionary impact of the tariffs’, he said. ‘Moreover, a larger-than-expected increase in Chinese exports to Europe could push down production and inflation.’

However, downside risks to economic growth would subside were trade negotiations to show progress, he said.

‘The anticipated increase in public spending in Europe could support growth, with the effects appearing gradually over time’, he said. ‘Disruptions to global supply chains would put upward pressure on inflation.’