La ECB promises new increases of the rates e Fabio Panetta quotes Emotions by Lucio Battisti: "We must not drive like a madman with the lights off in the night" in the fight against inflation. The member of the Executive Board of the ECB, in a speech at an event of the Center for European Reform in London, expressed a more cautious tone on the next steps. “That doesn't mean we won't act decisively in our fight against inflation. It means that we will move decisively in the right direction”, said Panetta adding that “the ECB should not commit unconditionally on its future moves” and should instead “calibrate monetary policy so that it looks forward and can be modulated on the basis of the data economics, also clarifying better its function of reaction".
Caution and evaluation is the recipe of the Italian on the Eurotower board who evoked "the risk of an excessive restriction" on monetary conditions: "With rates now in restrictive territory, what counts is the extent and duration of the restrictive conditions".
Panetta: inflation could drop below 3% in 2023
As for theinflation, Panetta expresses cautious optimism. "Inflation could fall below 3% at the end of this year." “In recent weeks, the energy component of inflation has recorded a reduction greater than that contained in our December projections. As a result, headline inflation is also decreasing. If the current discrepancy between actual and forecast inflation were confirmed in the coming months, the dynamics of consumer prices would fall below 3% towards the end of this year”.
On interest rate hikes "in small steps": the risks of excessive tightening according to Panetta
“Loan rates are climbing faster than in the past, in line with the ECB's steep rate hike. And loans to businesses and households are decelerating rapidly”, says Panetta, thus inviting caution in raising rates. "Most of the effects of the squeeze are yet to come" and therefore the adjustment on the credit markets "will probably compress consumption and investments in the coming months".
“By acting on our policy rate hikes, i.e. moving in small steps, we can ensure that we calibrate both elements more precisely in light of incoming information and our reaction function. This framework will enable us to return to our objective without undue delay. And it will allow us to do it with minimal cost to the economy and employment, reducing the risk of overtightening”.
The ECB confirms the 50bp rate hike in March
Risks to the eurozone economy are rebalancing, but price pressures remain intense. “The goal is to bring inflation back to 2%”. This is what we read in the Economic Bulletin of the ECB, which after the 50 basis point increase in interest rates on 2 February, intends to "raise interest rates by another 50 basis points at the next monetary policy meeting, in March, to then evaluate the subsequent evolution”. A piece of news that is not really surprising and the Bags they remain positive.
Overall, “the economy has shown greater resilience than expected and should record a recovery in the coming quarters. The unfavorable conditions for growth are due to the consequences of the conflict in Ukraine and geopolitical uncertainty. But even with positive factors such as the gradual easing of supply bottlenecks, gas supplies have become more stable, the climate of confidence has improved”. This is what emerges from the ECB's economic bulletin in which it also launched yet another invitation to governments.
ECB warns Governments: "stop aid as energy prices fall"
With the attenuation of the energy crisis, the ECB calls on Governments to rapidly reduce the incentives. “Public support measures to protect the economy from the impact of high energy prices should be temporary, targeted and adapted to preserve incentives to consume less energy,” reads the monthly economic bulletin. In particular, as the energy crisis becomes less acute, it is important to start rapidly rolling back these measures in line with falling prices and in a concerted manner."
Otherwise, there is a risk that such measures will lead to an increase in inflationary pressures in the medium term, which would require stronger monetary tightening. Furthermore, in line with the EU economic governance framework, “le budgetary policies they should be oriented towards making the economy more productive and gradually reducing the high public debt”. Lastly, according to the ECB, policies aimed at strengthening the euro area's supply capacity, particularly in the energy sector, can help reduce pressure on prices in the medium term. For this reason, the ECB also calls on governments to rapidly implement their investment and structural reform plans under the program Next Generation Eu.
