LONDON (Reuters) – The European Central Bank (ECB) should start raising interest rates in small increments and avoid committing to future decisions as inflation in the euro zone falls, Fabio said on Thursday. Panetta, member of the institution’s Board of Governors.
The ECB raised its key interest rate by 50 basis points earlier this month to 2.5% and hinted that a rise of the same magnitude would take place next month, a steady pace as the cost of credit in the euro zone has already increased by 300 basis points since July.
Fabio Panetta pleads for more caution from now on, considering that the accelerated pace of monetary tightening by the ECB has not yet produced all its effects on the economy.
“With rates now moving into restrictive territory, it is the extent and duration of the monetary policy restriction that matters,” he said at an event in London.
“By smoothing our policy rate hikes, that is, moving in small steps, we can ensure that we calibrate both elements more precisely to new data and our responsiveness,” he said. added.
These remarks contrast with those of other members of the ECB, such as Klaas Knot and Joachim Nagel, who are calling for higher rate hikes.
Financial markets are banking on further rate hikes from the ECB which could lead to a deposit rate of 3.5% by summer.
According to Fabio Panetta, inflation in the euro zone, currently at 8.5% over one year, could fall back below 3% by the end of the year if the drop in energy prices continues.
(Report Marc Jones; written by Francesco Canepa; Claude Chendjou, edited by Blandine Hénault)
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