(Bloomberg) -- The European Central Bank must continue to lower borrowing costs to keep inflation from undershooting, according to Governing Council member Fabio Panetta.
“Monetary conditions are still tight and new cuts will be necessary,” the Bank of Italy governor said on Thursday in Rome. “As inflation subsides, our focus should be on the sluggishness of the real economy: without a sustained recovery, inflation risks being pushed well below the target, opening up a scenario that would be difficult for monetary policy to counteract and should therefore be avoided.”
The ECB is weighing how quickly to lower rates after a third reduction of the year this month. President Christine Lagarde said last week that the pace of easing is still to be decided, despite the direction for monetary policy being clear.
Investors are more certain about how the cycle will pan out. They’re pricing a spate of moves until the deposit rate reaches 2% mid-next year. Some policymakers back such an outcome, though others are urging prudence.
Inflation, however, appears to be largely under control. While it’s expected to briefly tick higher following September’s slump to 1.7%, officials reckon the 2% goal is within reach early next year — instead of at the end of 2025 as previously thought. October data are due later on Thursday.
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