Panetta: 'Restrictive monetary conditions no longer necessary'

"With inflation close to target and domestic demand stagnating, restrictive monetary conditions are no longer necessary". This was said by the Governor of the Bank of Italy, Fabio Panetta, in his speech at Bocconi University in Milan entitled 'Back to the future: forward-looking considerations on monetary policy normalisation', introduced by the Rector, Francesco Billari.

"At the current stage, we should focus more on the sluggishness of the real economy: without a sustained recovery, inflation risks being pushed well below target, opening up a scenario that would be difficult for monetary policy to counter and should therefore be avoided. In short, we need to normalise our monetary policy stance and move into neutral - or even expansionary - territory, if necessary,' Panetta noted.

"The exceptional circumstances," he added, "of the past two years have forced central banks to give less weight to forecasts and live day-to-day (or 'meeting by meeting') predictions. Now that the situation on the inflation front is normalising, the ECB should also normalise the way it calibrates its monetary policy stance, returning to tradition and refocusing on its medium-term reaction function. In short, we should return to the future'