The moment is “fast approaching” for the European Central Bank (ECB) to cut interest rates, and timely and gradual steps could help to reduce ensuing volatility on financial markets and in the economy, a top policymaker said on Saturday.
Addressing the Assiom Forex meeting in Genoa, ECB Governing Council member Fabio Panetta said the next monetary policy move had to reflect a situation in which disinflation is ongoing and a wage-price spiral unlikely, while rate hikes are proving to have a stronger effect on the economy than in the past.
“The time for a reversal of the monetary policy stance is fast approaching,” said Mr. Panetta, who became Bank of Italy Governor in November after a stint as an ECB executive board member.
“We need to consider the pros and cons of cutting interest rates quickly and gradually, as opposed to later and more aggressively, which could increase volatility in financial markets and economic activity,” he added.
The European Central Bank held interest rates at a record-high 4% last month and reaffirmed its commitment to fighting inflation even as the time to start easing borrowing costs approaches.
The debate is now focused on whether the ECB will start to cut rates as early as April or opt to delay.
“Any speculation on the exact timing of monetary easing would be a sterile exercise and disrespectful to the ECB Governing Council as a collegiate body,” Mr. Panetta said.