For Fabio Panetta, of the ECB, “we must not go too fast in raising interest rates”

Could the European Central Bank (ECB) be at a turning point? Thursday, June 1, Christine Lagarde, its president, for the first time hinted that the sharp rise in interest rates could soon stop: “We are approaching our cruising altitude and we must rise more gradually. »

In an interview with Le Monde, Fabio Panetta, one of the six members of the ECB’s executive board – considered the most “dove” (in favor of a relaxation of monetary policy) of all – goes in the same direction, believing that the he institution “is not far” from the end of the rate hike. He also fears a “technical recession” for the euro zone during 2023.

The ECB’s objective is to keep inflation at 2%. This is currently 6.1%. Should we be worried about it?

Inflation is too high, but there is no reason to worry. We are doing everything we can to bring inflation down to 2%. In less than a year, we have raised our interest rates sharply, from -0.5% to 3.25%, and inflation is slowing, as data released Thursday, June 1 [l’inflation en zone euro est passée de 7 % en avril à 6,1 % en mai] confirm it.

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Our rate hikes are making bank credit more expensive and this is affecting corporate and household investment. But monetary policy takes quite a long time to act and it generally takes several quarters for its real effects to be fully felt in the real economy and transmitted to inflation.

But how long will it be before inflation returns to a reasonable level? Let’s say 3%?

Our latest macroeconomic projections suggest inflation of around 3% at the start of 2024 and close to 2% in 2025, without of course taking into account any new shocks.

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The ECB has been saying since autumn 2021 that inflation will soon return to 2%. Why would Europeans believe you now?

Investors understand that the rise in inflation is due to a series of global non-monetary policy shocks. They know that we will continue to act until we see a convincing move in inflation towards our 2% target, and expect it to return to that level. If we have not succeeded so far, it is not for the reasons advanced by the commentators, who predicted a sharp rise in inflation in 2021. No one had foreseen the severe bottlenecks in supply chains, the war in Ukraine or Russia’s manipulation of energy supplies. Without these unpredictable events, we would be in a totally different world and inflation would be much lower.

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