(Bloomberg) -- Former Italian Prime Minister Mario Monti said past failings of the European Central Bank mean it now can’t allow itself to appear weak in fighting inflation.

“The ECB as well as major central banks in the world are coming out of a period where they lost a considerable portion of their credibility for not seeing inflation coming up early enough,” Monti said in an interview Friday.  

He spoke just after euro-area data showed that consumer-price growth slowed drastically in March — decelerating to 6.9% after a reading of 8.5% in February. 

Were it not for past inflation miscalculations by central banks, the drop in the inflation rate might have caused ECB policymakers to pause after 350 basis points of interest-rate hikes, he said.  

“I  cannot read into their soul, which they do have, but it would be understandable if they were particularly cautious,” Monti said at the Ambrosetti workshop in Cernobbio, Italy.

The former prime minister wasn’t the only one on the shores of Lake Como to highlight central banks’ current dilemmas. Nouriel Roubini, chairman of Roubini Macro Associates, thinks the financial-market turbulence linked to crises at Silicon Valley Bank and Credit Suisse may result in a slowdown in the pace of interest-rate hikes.

“I think central banks are going to blink, they’re going to wimp out, faced with financial crisis,” Roubini said, noting that whatever they do, there could be negative consequences. 

“You’re damned if you do, and damned if you don’t,” he said. “You just have to chose your poison.”

Spreads Widening

Some of those negative effects are economic slowdown and higher payments on government bonds. Italy, whose debt currently exceeds 145% of gross domestic product, is among countries who suffer when rates go up. 

Monti is well aware of the danger. He was prime minister from 2011 to 2013, leading a cabinet of technocrats after the euro-area debt crisis threatened to push Italy’s borrowing costs out of control, forcing then-premier Silvio Berlusconi to depart.

He said that while spreads between Italian and German government bonds are “unreasonably high” compared to other Southern European countries, there’s no reason “for alarm” at this time and he is confident that the ECB’s emergency tool will kick in if required. 

(Updates with Roubini starting in sixth paragraph)

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