Sat. Mar 2nd, 2024
ECB does not need to suppress the still fragile economy

In his first public comments on monetary policy since joining the European Central Bank (ECB) late last year, ECB board member Piero Cipollone stated that the bank does not need to further dampen the euro zone’s economy in order to control inflation. Cipollone emphasized that demand in the euro zone is still weak. He maintained a cautious approach similar to his predecessor and fellow Italian, Fabio Panetta.

In contrast, Fabio Panetta, now the governor of the Bank of Italy, was notably more direct on Saturday, suggesting that the time to cut rates was “fast approaching.” However, most of the 26 policymakers overseeing euro area policy believe that more evidence is needed before making a decision to cut borrowing costs. Investors were initially predicting that the ECB would begin reducing rates as early as March, but they now see a 50% probability of the first rate cut occurring in April.

At an event at the European Parliament, Cipollone noted that demand is still weak and there is no need for monetary policy to further reduce it. He further suggested that supply shocks could create an opportunity for demand to recover without fueling inflation. However, he avoided directly addressing the issue of cutting interest rates and instead emphasized that curbing an already weak economy is unnecessary. He also stated that a potential recovery does not need to be accompanied by higher inflation.

By Editor

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