Monday, February 26

ECB Doesn’t Need to Curb Demand Further to Tame Prices, Cipollone Says

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(Bloomberg) — There’s no need for the European Central Bank to further curb demand in its quest to regain control over inflation, Executive Board member Piero Cipollone — signaling that interest rates don’t need to rise any more. 

In his first public remarks on monetary policy since taking up his role in November, the Italian official also suggested the struggling euro-zone economy could bounce back without prices doing likewise.

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“With demand still weak and inflation expectations anchored, there is no need for monetary policy to generate further slack to keep inflation in check,” Cipollone said Monday in Brussels. “The unwinding of supply shocks creates scope for demand to recover without fueling inflation.”

Most policymakers are signaling that rates may be lowered in April or June as inflation cools. The timetable hinges on when the 2% target for prices is met, with the ECB predicting that won’t happen until next year.

Italian central bank chief Fabio Panetta said at the weekend that the time to loosen policy is “fast approaching” — citing the rapid progress toward the inflation goal. More hawkish Governing Council members including Isabel Schnabel have urged patience and warned against cutting too soon.

Officials are particularly focused on salaries and profits as key inflation drivers. According to a new ECB indicator presented last week, elevated wage growth in the euro area hasn’t reached an inflection point yet.

“Lower energy prices now create scope for some wage catch-up, especially if profits normalize,” Cipollone said. “But it will ultimately be a combination of these dynamics that determines whether inflation converges durably to our target. This is why we need to remain data-driven as we consider our next monetary-policy decisions.”

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