MNI BRIEF: ECB Must Be Alive To Spillover Dangers - Panetta

The European Central Bank must remain “fully data-dependent and avoid pre-committing to any specific policy path," Executive Board member Fabio Panetta told the ECB and Its Watchers conference in Frankfurt on Wednesday, while maintaining the separation principle between price stability and financial stability at a time when global tightening of financing conditions is creating financial and policy spillovers.

Wage-setting dynamics and “opportunistic” behaviour by firms could delay the fall in core inflation, Panetta said, at the same time as US and euro area demand shows signs of weakness.

Slowdowns in the money aggregates M1 and M3, plus a rapid deceleration in bank credit, indicate that the transmission of ECB monetary policy to the economy may have become stronger, he said. Global tightening may also be amplified by the recent financial tensions in global banking markets, as banks become more sensitive to deposit outflows.