ECB does not need to suppress the still fragile economy

At an event at the European Parliament, ECB board member Piero Cipollone reiterated his stance that monetary policy should not further dampen the euro zone’s economy to control inflation. He maintained a cautious approach similar to his predecessor and fellow Italian, Fabio Panetta.

Cipollone emphasized that demand in the euro zone is still weak, and curbing an already weak economy is unnecessary. He also noted that a potential recovery does not need to be accompanied by higher inflation. 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. The reduction may have bank deposits lowered from 4.0% to 2.75% -3.0% by the end of the year.

By Editor

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