Fabio Panetta, Bank of Italy Governor and the European Central Bank (ECB) executive board member, said that given the normalization of the inflation situation in the eurozone, the ECB should return to a more far-sighted approach and provide more recommendations on future steps.
"The eurozone economy is returning to its "intended territory" after the exceptional shocks of 2022-2023. Therefore, the Central Bank needs to focus on the sluggishness of the real economy and return interest rates to neutral or even expansionary territory," Panetta said, adding that with the current inflation rate (2% per annum in October) and stagnant domestic demand, restrictive monetary conditions are no longer needed.
Panetta also said that the ECB should change its "meeting by meeting" approach to monetary policy of the past two years, which has led it to attach less importance to forecasts. The Bank of Italy Governor also urged the ECB "to provide more guidance on the expected evolution of our policy than has been the case in the recent past.
According to the latest ECB staff macroeconomic projections, headline inflation is expected to increase somewhat in the last quarter of this year, before declining further to the inflation target by the end of 2025. The expected increase in the near term largely reflects energy base effects. Over the medium term energy inflation should settle at low positive rates given market expectations for energy commodity and wholesale prices and planned climate change-related fiscal measures.