ECB Executive Board member Fabio Panetta said in a speech, “after the progress we have already done in adjusting our policy stance, an aggressive tightening is not advisable, for two main reasons.”
First, “current macroeconomic policies should be designed to avoid unnecessarily heightening the risk that the increasingly likely contraction in coming months becomes a severe and protracted one, which would scar the economy… it also requires that monetary policy does not ignore the risks of overtightening,” he said”.
Second, “even in the face of lasting consequences of supply shocks on potential output, the implications for the output gap, inflation dynamics and optimal policy calibration can only be derived over time. And this reinforces the case that, for as long as inflation expectations remain anchored, monetary policy should adjust but not overreact”.
