Bank Of Italy Governor Urges ECB To Cut Rates Further

By Alessia Peretti

(EurActiv) -- Bank of Italy Governor Fabio Panetta urged the European Central Bank (ECB) on Thursday to consider further rate cuts, saying the current restrictive monetary policy risks hampering economic growth.

Panetta made his call at the World Savings Day event in Milan, sending a clear message to ECB President Christine Lagarde.

The ECB’s aggressive monetary tightening following the energy shock has managed to curb inflation swiftly, but "monetary conditions remain restrictive, requiring further cuts," he said.

Panetta warned that attention should now turn to the sluggish real economy. Without a sustained recovery, he warned, "we risk pushing inflation well below our 2% target", a situation that would be difficult for monetary policy to address and should be avoided.

"The European economy remains weak, burdened by persistently high real interest rates and the withdrawal of past fiscal stimuli. The Italian economy is feeling the strain," he said.

In highlighting Italy's low growth drivers, Panetta also pointed to limited innovation capacity, underinvestment and a fragmented industrial base focused on traditional sectors - problems exacerbated by high public debt and interest payments.

The ECB has enacted three rate cuts of 25 basis points each so far, with the latest reduction announced on 17 October.

A strong voice on the ECB board, Panetta has consistently advocated for rate cuts, first raising the issue in his first speech as the bank’s governor in November 2023.

ECB rate policies have repeatedly come under fire from Italian officials.

Most recently, in September, Italian Deputy Prime Minister Antonio Tajani criticised the ECB's decision to cut interest rates by 0.25%, saying it was "too timid" and that "the ECB should do more.”

“I believe the founding treaty should be revised because it limits the ECB's role to controlling inflation, whereas it should also support growth and the real economy,” Tajani said at the time.

Italian Business and Made in Italy Minister Adolfo Urso also joined the criticism, describing the cut as "insufficient" and calling for "an immediate change of direction."

Responding to the political pressure, Lagarde reiterated that the ECB is "an independent institution, as stated clearly in the EU Treaty, and we do not respond to political pressures".