Fabio Panetta, the European Central Bank's (ECB) Executive Board member, said on Friday that he thinks the ECB's policy normalization should remain gradual. However, he added that beyond ending negative rates, further adjustments to the ECB's monetary policy stance would depend on the evolution of the outlook for the region's inflation and the economy.
Panetta also suggested that a surge in prices does not reflect excess demand in the Eurozone. According to the official, inflation expectations stand at around 2%, wage increases remain moderate, and confidence is depressed by the Russia-Ukraine war.
Also, Panetta noted that acting against fragmentation is necessary, as, in the vulnerable countries, it would lead to capital outflows and an increase in yields, which, in turn, will result in "too tight" financing conditions. At the same time, he added, the least vulnerable countries would see capital inflows that would compress yields, resulting in "too loose" financing conditions and "too high" inflation. Action to prevent fragmentation is, therefore, not at odds with the normalization, he concluded.