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MNI: Covid Pandemic May Not Be Over - ECB's Panetta

(MNI) LONDON
(MNI) Frankfurt

Europe's Covid-19 pandemic may not be over yet, ECB Executive Board member Fabio Panetta said in a speech Wednesday, as he urged monetary policymakers to remain patient, while staying vigilant to both upside and downside risk to the recovery and to the medium-term inflation outlook.

"Our focus needs to be on the risk that inflation in the medium term turns out persistently lower or higher than our 2% target, rather than on short-run developments," Panetta said. Monetary policy should remain patient, he added, with a premature tightening running the risk of turning a supply shock into a prolonged recession.

"We should therefore not react by curbing the recovery in our domestic demand – or put it at risk by tolerating unwarranted spillovers to financing conditions from abroad," Panetta said. "If the sources of higher inflation today do last longer, there is little or no evidence at this stage to suggest that they would feed into wage-price spirals or a de-anchoring of inflation expectations in the euro area."

Downside risk to economic activity may be growing, he said, with the recent surge in the number of infections and the renewed introduction of pandemic-related restrictions in some euro area countries meaning that the pandemic is far from over.

"Until we see tangible evidence that upside risks to medium-term inflation are materialising, we should continue to look through the current inflation spike," Panetta said. "We should not be afraid of wage growth that is consistent with our inflation target. And we should not ignore risks on the downside, especially as we face an asymmetry of tools in reacting to negative shocks given the proximity of our policy rates to their effective lower bound."

MNI London Bureau | +44 20 3983 7894 | luke.heighton@marketnews.com
MNI London Bureau | +44 20 3983 7894 | luke.heighton@marketnews.com

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