ECB policymaker Panetta says ECB’s goal is to keep inflation expectations firmly anchored, limiting second-round effects
- Inflation in Eurozone is currently hovering around 3% and is expected to remain above that level until early 2027
- In considering future interest rate decisions, ECB’s goal is to keep inflation expectations firmly anchored, limiting indirect and second-round effects of shocks
- Several indicators suggest rise in equity markets seen after Iran conflict is due to an underestimation of risks
- Risks linked to higher energy prices, tighter financial conditions and persistent geopolitical uncertainty appear to be only partially incorporated into market evaluations
ECB’s Panetta said inflation is currently hovering around 3% and is expected to stay above that level for an extended period, highlighting the persistence of underlying price pressures amid the geopolitical backdrop. He stressed that the central bank’s primary objective in future interest rate decisions will be to keep inflation expectations firmly anchored, preventing temporary price shocks from feeding into wages and broader inflation through indirect and second-round effects.
The Bank of Italy governor also highlighted growing concerns over financial market complacency following the recent Iran conflict. According to Panetta, several indicators suggest that the rebound in global equity markets reflects an underestimation of the risks facing the global economy rather than an improvement in fundamentals.
He warned that investors may not be fully pricing in the potential consequences of higher energy prices, tighter financial conditions and persistent geopolitical uncertainty. These risks, he argued, appear to be only partially incorporated into current market valuations, leaving financial markets vulnerable should geopolitical tensions intensify or inflationary pressures prove more persistent than expected.
This article was written by Giuseppe Dellamotta at investinglive.com.