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MNI BRIEF: ECB's Panetta Says Overtightening A Risk

(MNI) London

The European Central Bank must be careful not to overtighten as it seeks to contain inflation, Executive Board member Fabio Panetta said in a speech in Frankfurt.

“A further policy adjustment is warranted in order to keep inflation expectations anchored and stave off second-round effects," Panetta said. “However, the calibration of our stance should not rely on a one-sided view of risks − especially as we continue normalising our monetary policy in a highly uncertain economic environment."

Otherwise the ECB risks causing excessive market volatility and a protracted economic slowdown beyond what is necessary to stabilise inflation in the medium term, he said. So far, inflation expectations have remained anchored and the risk of an incipient wage-price spiral in the euro area has been contained. While it is important to remain vigilant over inflation, the erosion of real incomes might also sap demand, he noted.

Panetta’s speech came as Bundesbank President Joachim Nagel said the ECB still had a long way to go to contain inflation.

MNI London Bureau | +44 203-865-3829 |
MNI London Bureau | +44 203-865-3829 |

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