by Giuseppe Fonte
ROME (Reuters) – The European Central Bank (ECB) must avoid causing “unnecessary damage” to the economy and financial stability by keeping interest rates high, the Bank’s new governor said on Thursday. Italy, Fabio Panetta.
The monetary tightening cycle, which saw ten consecutive rate hikes until September, has not yet produced its full effects and will continue to dampen demand in the future, said Fabio Panetta, member of the board of governors of the ECB.
In his first major speech since taking over as head of Italy’s central bank, he warned that the eurozone economy would remain weak in the final three months of the year and that risks to the economy were tilted on the decline.
“We must avoid causing unnecessary damage to economic activity and risks to financial stability, which would ultimately undermine price stability,” he said of interest rate policy.
He added that the current rate level is compatible with a fall in inflation to the ECB’s 2% target.
The ECB raised its deposit rate to a record 4% this year to curb inflation but opted for a pause at its last meeting in October and markets began to anticipate a first rate cut next year. next, from April or June.
(Reporting Giuseppe Fonte and Gavin Jones; editing by Keith Weir; Dagmarah Mackos, editing by Blandine Hénault)
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