ECB leaders oppose tightening policy too quickly

According to some leaders of the European Central Bank, the central bank should continue raising interest rates at a slower pace so as not to aggravate the recession in the eurozone economy.

It is worth noting that the ECB has raised rates by a total of 200 basis points since July, which is a record high rate of monetary policy tightening. At the same time, the regulator is expected to raise rates by another 50 or 75 basis points in December.

Fabio Panetta, a member of the ECB's governing council, fears that excessive rate hikes could significantly worsen the economic downturn. The fact is that the current tightening of policy will already make a negative contribution to annual GDP growth of more than one percentage point until 2024.

«If we squeeze demand excessively and for a long time, we will face the risk of production constantly lagging behind the trend,» Panetta said. 

In the meantime, ECB representatives claim that inflation expectations are mostly kept close to the central bank's target level of 2.0% (the long-term market indicator is 2.36%). However, the latest forecast of the European Commission suggests that in 2024 inflation in the eurozone will be 2.6%, and does not deny the existence of upward risks for the pace of price growth.

The neutral level of rates, at which they do not stimulate or slow down economic growth, is between 1.5% and 2.0%. To date, the ECB deposit rate is already at the lower limit of this range.