By Laurie Laird
— Fabio Panetta calls inflation outlook “unsatisfactory”
LONDON (MaceNews) – A leading European central banker lamented the eurozone’s chronically-low inflation, refusing to rule out an extension of the current asset purchase programme if inflation remains below target.
“We do have room for manoeuvre, because so far we have only used part of the €1.85 trillion envelope,” said ECB Executive Board member Fabio Panetta in an interview with the Spanish newspaper El Pais. “But if we spend this money and still fall short of the objective, then we will need to do more,” adding that “a truly prudent policy” would err toward injecting “too much stimulus rather than too little.”
The ECB announced plans to accelerate bond buying under the Pandemic Emergency Purchase Programme after its March rate-setting meeting, a “decision that has been very effective,” according to Panetta. “European nominal sovereign yields have partly decoupled from U.S. yields … adding stimulus to the recovery.”
With much of the eurozone returning to economic lockdown following a surge in Covid transmissions, Panetta was extremely cautious about the economic outlook. “Uncertainty has receded to some extent, but is still high … it would not be prudent to bet on a rapid recovery.”
Panetta also suggested further fiscal support for eurozone economies, on top of the €750 billion Next Generation EU-wide programme agreed last summer, although he did not specify whether the additional funds should come from Union or individual member states. America’s large fiscal stimulus “is a key reason” why the eurozone recovery will lag the U.S, he said.
Given the bloc’s weak outlook, Panetta called the zone’s medium-term inflation outlook – forecast to hit 1.2% next year and 1.4% in 2023 – “unsatisfactory,” adding that extending the time frame in which to hit the ECB’s target “is not a convincing argument.” A target of 2% “is the most suitable … and it should be symmetrical,” he added.
Panetta downplayed suggestions of strife amongst governing council members. “Views on the speed of decision making may vary, but there is agreement on the direction of monetary policy.” He also praised ECB President Christine Lagarde for managing to “obtain unanimity or a hefty majority for all the decisions we have taken.”
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Contact this reporter: laurie@macenews.com.
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