© Reuters. The Bank of Italy’s senior deputy governor, Fabio Panetta is seen standing in the Bank of Italy’s corridors before being appointed to the executive committee of the European Central Bank.
FRANKFURT (Reuters) – The European Central Bank should not accept further delays in bringing inflation back to target because the current outlook is not positive and continuously misses the risk of harming the economy. ECB board member Fabio Panetta told Spain’s El Pais.
The ECB has fulfilled its nearly 2% target in eight years and their forecasts show that they will continue to miss for years to come as the bloc struggles to counter the sluggishness caused by the pandemic.
With the stimulus nearing its limit, some policymakers argue that the ECB simply has to accept slower upward price pressures instead of trying to do more but Panetta dismisses this argument, warning that the costs outweigh the benefits.
“The argument that we can widen the horizon to reach our goal is not a compelling argument,” El Pais quoted him on Sunday. “The ECB hasn’t achieved its goal in too many years.”
“It would be more expensive to wait,” argued Panetta. “It will make it harder to maintain inflation expectations and we will risk reducing our economic potential permanently.”
The ECB stepped up its stimulus last month but still saw only 1.4% rise in inflation by 2023, a level Panetta called unsatisfactory.
Given the growth rate of vaccination, some policy makers have come up with a case of restricting emergency bond purchases from the third quarter onwards but Panetta warned, arguing that a cautious approach during the crisis The panic is injecting too much stimulus instead of too little.
In fact, Panetta even called on European governments to increase financial support, warning that the bloc’s economy is likely to suffer more from the pandemic than it is now.
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