ECB Insight: Panetta Does the Splits, Hints at End of Easing But Open to Doing More

30 May 2025

By Marta Vilar – ROME (Econostream) – European Central Bank Governing Council member Fabio Panetta on Friday offered a blunt indication that the ECB is probably nearing the end of its monetary policy easing cycle, accompanied by indications of openness to doing more.

‘The previous cuts clearly leave less room for reducing interest rates further’, said Panetta in his concluding remarks at the presentation of the 2024 Annual Report of Banca d’Italia, which he heads.

Still, though he recognised that previous easing inherently limits the scope for further rate reductions, Panetta nevertheless suggested that additional easing remains possible, and indeed suggested reasons why this could become appropriate.

His cautious tone stands not just in contrast to his own long track record of enthusiasm for easier monetary policy. Even some Governing Council colleagues traditionally regarded as policy hawks have expressed somewhat more explicit openness to more rate cuts.

Latvijas Banka Governor Mārtiņš Kazāks, for example, recently said that ‘a couple more rate cuts are possible,’ depending on how global trade tensions evolve. Similarly, Bank of Lithuania Governor Gediminas Šimkus floated the idea that a rate cut following one anticipated in June could take place as early as July.

Despite Panetta’s emphasis on the increasingly limited room for further easing, his subsequent comments revealed that he is ready to embrace additional stimulus should economic conditions warrant it.

‘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’, he said, indicating that the fragile economic environment might ultimately justify further ECB action.

Panetta’s remarks reflect a nuanced stance: less dovish in tone, yet still fundamentally supportive of easing under the right conditions. This view is also evident in his discussion of the inflation outlook.

‘On the inflation front, energy prices have fallen considerably and the euro has strengthened’, he said. ‘Together with weak economic growth and intense global competition, these developments could dampen consumer price inflation.’

As if that weren’t enough, he then suggested that a stronger euro, higher uncertainty or tighter financial conditions ‘could magnify the recessionary impact of tariffs’, citing the ‘r’ word, which the ECB has so far maintained is not part of its baseline scenario.

Still, Panetta was careful to balance this risk assessment by outlining factors that could instead push inflation upward. These include the potential for positive trade negotiations, increased public spending, and renewed supply chain disruptions.

This is not the first time Panetta has adopted a more cautious tone.

On March 31, he remarked that ‘growing uncertainty requires a prudent approach to rate cuts’, a sentiment in line with his latest remarks.

Nevertheless, as we suspected and noted then, such caution appears to be strategy rather than a fundamental shift away from his typically dovish stance.