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Panetta Says ECB Needs to Stay Vigilant on Inflation Outlook

Panetta Says ECB Needs to Stay Vigilant on Inflation Outlook

The European Central Bank needs to remain vigilant about the outlook for inflation and continues to stand ready to act if needed to ensure it reaches its objective, Executive Board member Fabio Panetta said.

Policy makers will carefully assess all economic indicators, including exchange-rate developments, he told a conference on Tuesday, adding that the outlook for the euro area remains clouded by persistently high uncertainty.

“The results achieved by our monetary-policy measures are remarkable, but they are not fully satisfactory yet, as price pressures and inflation expectations are expected to remain subdued,” Panetta said.

Panetta Says ECB Needs to Stay Vigilant on Inflation Outlook

With his remarks, the Italian is joining policy makers including ECB President Christine Lagarde, who have sought to stress in the past few days that there’s no room for complacency in ensuring the 19-nation economy continues to recover from its pandemic hit.

Despite significant monetary stimulus including negative interest rates and a 1.35 trillion-euro ($1.6 trillion) emergency bond-buying program, inflation is only expected to reach 1% next year, below the Governing Council’s goal of just under 2%.

The recent appreciation of the euro is an additional hurdle for the ECB. Lagarde has said it has partly offset the positive impact of monetary support on inflation.

The currency is trading close to its strongest level in more than two years following an advance of over 10% since March.

Chief economist Philip Lane said on Monday there was still a “considerable gap” to close in terms of economic output, after pandemic lockdowns plunged the euro area into its worst contraction in living memory.

The region is now grappling with a resurgence of infections, which Panetta said has somewhat slowed momentum in the services sector as it’s more affected by social distancing.

“The risk of a deterioration in labor-market conditions weighs on household consumption, while balance sheet vulnerabilities may affect credit supply and reduce business investment,” he said. “Overall, the balance of risks remains on the downside.”

©2020 Bloomberg L.P.