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Italian Prime Minister Panetta believes the time for an ECB rate cut is “rapidly approaching” By: Reuters

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©Reuters. File photo: View of the European Central Bank (ECB) headquarters in Frankfurt, Germany, March 16, 2023.Reuters/Heiko Becker/File Photo/File Photo

Written by Giselda Vagnoni and Valentina Za

Genoa, Italy – The European Central Bank (ECB) says the time to cut interest rates is “rapidly approaching” and timely and gradual steps could help reduce subsequent volatility in financial markets and the economy. said one policy official. Saturday.

ECB Governing Council member Fabio Panetta, speaking at the Axiom foreign exchange conference in Genoa, said that while interest rate hikes have proven to have a stronger impact on the global economy, the next monetary policy move He said that it is necessary to reflect the situation where disinflation is underway and the possibility of a wage-price spiral is low. More economical than before.

Panetta, who took over as president of Italy’s central bank in November after serving on the ECB board, said, “The time is rapidly approaching for a change in monetary policy stance.”

“We need to consider whether to cut interest rates quickly and gradually, rather than more aggressively later, which could increase volatility in financial markets and economic activity,” he said.

The European Central Bank last month kept interest rates on hold at a record 4%, reaffirming its determination to fight inflation even as borrowing costs move closer to being eased.

Discussions are now focused on whether the ECB will start cutting interest rates as early as April, or whether it will choose to postpone them.

“Any speculation about the exact timing of monetary easing is futile and disrespectful to the ECB’s governing body,” Panetta said.

The ECB ended its fastest interest rate hike cycle in history in September.

Inflation debate

Despite growing confidence in recent weeks that price pressures are easing, key policymakers say they need more evidence that inflation is back on target before cutting rates. I’ve been doing it.

“What we need to discuss now is the conditions for starting monetary easing while avoiding risks to price stability and unnecessary damage to the real economy,” Panetta said.

Panetta cited concerns raised by more hawkish policymakers, saying that downside risks to inflation expectations are emerging as they are falling as quickly as they are rising. said that concerns about the “last mile problem” of falling prices appeared to be unwarranted.

Also, the potentially risky strong growth in nominal wages has been offset by declines in other costs, and the main driver of inflation, the total cost of production for companies, has stopped rising.

With costs stable and demand weak, businesses are less likely to pass on wage increases to consumers.

Panetta downplayed the inflation risks stemming from the Red Sea crisis, saying shipping only accounts for a small portion of total production costs.

“Again, low demand and high inventories reduce the likelihood that higher transport costs will be passed through to prices significantly,” Panetta said, adding that the possibility of escalating tensions cannot be ruled out.

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