ECB board member Piero Cipollone has stated that the ECB does not need to further dampen the euro zone’s economy in order to control inflation. He emphasized that demand in the euro zone is still weak and advocated for a cautious approach similar to his predecessor, Fabio Panetta. Last year, the ECB raised interest rates to an all-time high to combat inflation, but now the focus is on whether and when to begin reducing borrowing costs in response to slowing inflation and a sluggish economy.
Cipollone avoided directly addressing the issue of cutting interest rates, instead emphasizing that curbing an already weak economy is unnecessary. He also stated that a potential recovery does not need to be accompanied by higher inflation. At an event at the European Parliament, Cipollone noted that demand is still weak and that there is no need for monetary policy to further reduce it. He further suggested that the resolution of supply shocks could create an opportunity for demand to recover without fueling inflation.
In contrast, Fabio Panetta, now the governor of the Bank of Italy, was notably more direct on Saturday, suggesting that the time to cut rates was “fast approaching.” However, most of the 26 policymakers overseeing euro area policy believe that more evidence is needed, especially regarding wage growth, before making a decision to cut borrowing costs. Investors were initially predicting that the ECB would begin reducing rates as early as March, but they now see a 50% probability of the first rate cut occurring in April