The ECB has already undershot its nearly 2% target for eight years and its projections indicate that it will continue to miss for years to come as bloc struggles to absorb the slack left behind a pandemic-induced recession.
With stimulus already near its limits, some policymakers argue that the ECB must simply accept a slower rise in price pressures instead of trying to do even more but Panetta rejected this argument, warning that the costs outweigh the benefits.
“The argument that we could extend the horizon to meet the aim is not a convincing one,” El Pais quoted him on Sunday as saying. “The ECB has failed to reach its aim for too many years already.”
“Waiting will be even more costly,” Panetta argued. “It would make it more difficult to re-anchor inflation expectations and we would risk a permanent reduction of economic potential.”
The ECB ramped up stimulus last month but still only sees inflation rising to 1.4% by 2023, a level Panetta called unsatisfactory.
With vaccinations picking up pace, some policymakers are already making the case for curbing emergency bond purchases from the third quarter onwards but Panetta cautioned, arguing that a prudent approach in such a crisis is injecting too much stimulus rather than too little.
Indeed, Panetta even called on European governments to ramp up fiscal support warning that the bloc’s economy likely suffered more damage from the pandemic than currently visible.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)