2023-08-03 10:01:54
© Archyde.com. FILE PHOTO: The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo
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FRANKFURT (Archyde.com) – European Central Bank board member Fabio Panetta made the case on Thursday for keeping the ECB’s interest rates at their current high level for longer, rather than raising them further and risking having to reverse course.
The ECB raised rates for the ninth straight time in a year last week but signalled it may take a break at its next meeting in September as inflation continues to fall and growth weakens.
Panetta, who has long called for a cautious approach to raising borrowing costs, argued “persistence” in keeping rates high would allow the ECB to bring inflation to its 2% target without unduly hurting the economy or jeopardising financial stability.
“Emphasising persistence may be particularly valuable in the current situation, where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced and economic activity is weak,” Panetta told a webinar organised by Milan’s Bocconi University.
Euro zone inflation fell further in July — to 5.3% — and most measures of underlying price growth also eased, in a largely comforting sign for the ECB marred only by a further acceleration in the prices for services.
But a survey published on Thursday showed that even in the dominant, and so far booming, services industry activity was slowing, compounding a slump in manufacturing.
This was likely to strengthen the hand of those ECB policymakers calling a pause in rate hikes at the Sept. 14 meeting, which would leave the rate that the central bank pays on deposits at its current 23-year high of 3.75%.
“When steering the monetary policy stance, persistence is becoming as important as the level of our policy rates,” Panetta said. “This is particularly true given that risks to the inflation outlook have become more balanced, while risks to the economic outlook have shifted to the downside.”
The 64-year-old Italian is set to step down from the ECB’s board at the end of October to take over as the Bank of Italy’s governor, thereby retaining a seat on the Governing Council of the euro zone’s central bank.
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