ECB’s Panetta warns rate policy mustn’t push inflation too low

ROME (Reuters) – The European Central Bank must avoid the risk of cutting interest rates too slowly and lowering inflation excessively, Governing Council Member Fabio Panetta said on Thursday.

In a speech at a banking conference in Rome, Italy’s central bank governor said euro zone monetary conditions remain restrictive and need to be eased further.

“With the decline in inflation, we need to pay attention to the weakness of the real economy,” said Panetta, who is considered a monetary policy dove.

“In the absence of a firm recovery we would run the risk of pushing inflation well below target (and creating) a situation that monetary policy would struggle to counter, and which must be avoided.”

The ECB cut its key interest rate by 25 basis points to 3.25% this month – its third cut this year.

Policymakers are now debating how far interest rates may need to fall and how to signal their plans to investors.