ECB's Panetta pushes back on March rate hike commitment: Handelsblatt

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By Reuters
ECB's Panetta pushes back on March rate hike commitment: Handelsblatt
ECB's Panetta pushes back on March rate hike commitment: Handelsblatt   -   Copyright  Thomson Reuters 2023

FRANKFURT – The European Central Bank should not commit to any specific rate hike beyond February, especially since there is reason for cautious optimism about inflation, ECB board member Fabio Panetta told a newspaper, exposing a rift among policymakers.

The ECB has all but committed to raising its key rate by a half a percentage point next week to 2.5% but policymakers are expressing different preferences for March, suggesting that the debate is wide open, despite a guidance for significant policy tightening at a “steady pace”.

Some, including the Dutch and Slovak central bank chiefs, have specifically called for a 50 basis point increase in March, while others, including the Greek and Italian central bank governors have called for increased caution and gradual moves.

“There is too much uncertainty in the economy to unconditionally pre-commit to a specific policy course,” Panetta was quoted as saying by German newspaper Handelsblatt in an interview published on Tuesday. “Beyond February any unconditional guidance – that is, guidance unrelated to the economic outlook – would depart from our data-driven approach.”

Panetta said policymakers must base their eventual decision on the evolution of inflation, wages, energy prices, developments in Russia’s war in Ukraine and the performance of the global economy.

ECB President Christine Lagarde has repeatedly said that interest rates must rise significantly at a steady pace, and her guidance still stands for a 50 basis point rate hike in February and possibly in March.

Euro zone inflation dropped to 9.2% in December, from 10.6% in October, and a fall in energy prices is raising some optimism as recent data suggest the ECB can fight-off second round inflationary impacts.

“We had some good news on the inflation front, as it is likely that the supply shocks that have hit the economy in recent months are starting to reverse,” Panetta said in the interview. “We can afford to be anxiously optimistic, but we should be prudent and remain vigilant.

“Inflation is still too high, but recent developments suggest that we can fend off the risks of second-round effects and bring down inflation by continuing to adjust our policy rates in a well-calibrated, non-mechanical way.”