ECB’s Panetta calls for shift to neutral amid stagnant demand

Italian ECB Governing Council member Fabio Panetta emphasized today that restrictive monetary policies are “no longer necessary”, given inflation’s proximity to the target and sluggish domestic demand.

Panetta noted, “In the current phase, we should focus more on the sluggishness of the real economy,” highlighting the risk that a lack of recovery could drive inflation well below target, creating challenges for monetary policy to counteract.

He advocated for normalizing the ECB’s stance and moving toward a neutral or even “expansionary territory” if necessary, stressing, “We are probably a long way from the neutral rate.” Panetta also reminded that lowering rates below neutral at the bottom of a cycle aligns with standard policy frameworks historically followed by both ECB and Fed.

Separately, Estonian ECB Governing Council member Madis Muller shared that, “I wouldn’t ever want to say anything is a done deal,” but he expressed confidence that “we can again reduce interest rates in December.”