ECB Official Warns of Harmed Growth if Rates Increase Too Quickly
The ECB should move to smaller rate increases soon, according to Fabio Panetta, one of the executive board members. Falling energy prices could lead to rapidly decreased inflation, but too fast of a rate rise could wipe out economic growth and put financial stability at risk. Panetta urged his colleagues to move in “small steps,” taking into account that energy prices may stay low. He suggested that too much speed would be unwise, noting uncertainty in both directions. Differences among rate-setters regarding how much further the ECB should go remain prominent as it seeks a balance between stabilizing monetary policy and controlling inflation without harming growth.
Full Story – ECB board member warns of risk to economic growth if rates are raised too high
The European Central Bank should shift to smaller rate increases soon, or risk stamping outgrowth, one of its executive board members said on Thursday.
Fabio Panetta urged his fellow rate-setters to move in “small steps” after raising its critical policy rate by half a point at its past two meetings, saying falling energy prices could lead to a “rapid” decline in eurozone inflation this year to levels close to the central bank’s target of 2 percent.
The ECB has raised rates by 3 percentage points since July 2022 and has signaled that it will increase borrowing costs by another half point in March and by an unspecified amount in May. Its benchmark deposit rate is now 2.5 percent.
However, the governing council’s doves are increasingly concerned that the pace of rate rises risks wiping outgrowth and exacerbating risks to the stability of the financial system. They are pushing for the central bank to switch to smaller rate rises — or pause tightening altogether — in May and beyond.
“To move in small steps is not to move less,” Panetta told an event in London, saying the decline in energy prices — if maintained — would mean inflation falling to as low as 3 percent later this year. “We face so much uncertainty in both directions, I would consider it unwise to move very fast.”
The comments by Panetta, one of the most dovish members of the ECB board, indicate there are widening divisions among its rate-setters over how much further it…