ECB-Acting against inflation could stifle growth-Panetta

FRANKFURT, April 6 (Reuters) – A tightening of monetary policy by the European Central Bank aimed at bringing inflation down quickly could drag down an already slowing economy, executive board member Fabio Panetta said on Wednesday. of the institution.

Inflation in the euro zone reached 7.5% year on year in March, its highest level since the creation of the single currency, which is increasing pressure on the ECB to tighten its policy even if the surge in prices is mainly linked to the surge in energy prices, over which the monetary authorities have very little control.

“Quarter-on-quarter growth rates will be very weak this year,” Fabio Panetta said in a speech. “The negative impact of war may well push them into negative territory and produce lasting effects.”

Since oil and gas prices are expected to remain high and food prices could rise further, lowering inflation would be costly for the ECB as medium-term inflation expectations remain close to its target, it said. -he adds.

“A tightening of monetary policy would not directly affect energy and food prices, which are influenced by global factors and now by war,” he explained.

“So we would have to massively curb domestic demand to bring inflation down. That would mean drastically reducing real activity and employment, punishing wages and incomes.”

For Fabio Panetta, it is instead up to governments to mitigate the impact of the crisis through subsidies and tax cuts, and the ECB should only act if the rise in prices risks raising or drifting expectations. of inflation.

“We do not see any evidence of second-round effects today,” he added. (Report Balazs Koranyi, French version Marc Angrand)