The European Central Bank is set to ease monetary policy over coming months if data confirms its forecasts, and even after several rate cuts its monetary stance would remain restrictive, governing council member Fabio Panetta said on Friday.
Panetta, the governor of the Bank of Italy, delivered a dovish message at his annual keynote speech in Rome, saying euro zone inflation is expected to continue to ease, and salary rises to slow.
"Over the coming months, if the data confirms our current forecasts, we can expect an easing of monetary policy," he told the gathering of bankers and politicians.
He added that the policy stance would remain restrictive "even after several official rate cuts."
Numerous ECB policymakers have flagged an interest rate cut for June, a first step in bringing down the record high rate of 4% it currently pays on bank deposits. There is more uncertainty over how it proceeds in the following months.
"We must avoid monetary policy becoming too restrictive, which would push inflation below the ECB's symmetrical (2%) target," Panetta said.
The Bank of Italy chief noted that the coming decline in interest rates will be accompanied by a reduction in the ECB's balance sheet.
He said it was "fundamental" that this should not interfere with the ECB's policy stance or be allowed to create a lack of liquidity or fragmentation in the impact of monetary policy.
