Cautious Approach to Interest Rates Amid Global Uncertainty

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ECB’s Strategic Stance on Interest Rates

Fabio Panetta, a prominent member of the Executive Board of the European Central Bank (ECB), has emphasized the need for a prudent approach in adjusting interest rates, attributing this to the elevated uncertainty arising from evolving US trade policies.

The ECB has undertaken six rate reductions since June of the previous year. However, it has provided limited indications regarding future actions after the most recent adjustment of its benchmark deposit rate to 2.5% during the March meeting.

Panetta, who also serves as the Governor of the Bank of Italy, remarked, “The battle against inflation remains ongoing. The heightened uncertainty, primarily influenced by the occasionally contradictory announcements on US trade policies, necessitates a cautious approach towards reducing interest rates.”

Known for his dovish stance on monetary policy, Panetta recently advocated for a pragmatic and data-oriented approach within the ECB’s interest rate policy framework. In his latest address, he maintained a tone of caution, stating, “It will be crucial to vigilantly observe all elements that might obstruct our progress towards achieving the 2% inflation target.”