# ECB must be prudent with rates hikes as recession risk rises: Panetta
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-23
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: ECB Caution Advised on Rate Hikes Amid Recession Risk
Meta Description: ECB board member Fabio Panetta warns of recession consequences on inflationary pressures as ECB prepares for further rate hikes.
URL: https://financedigest.com/ecb-must-be-prudent-with-rates-hikes-as-recession-risk-rises-panettahtml

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MILAN (Reuters) -The European Central Bank must exercise caution with further rate hikes as a looming recession could ease inflationary pressures, lessening the need for central bank action, ECB board member Fabio Panetta said on Tuesday.

The ECB raised rates back to zero from negative territory in July and will likely hike again in September, fearing that inflation, now approaching double digits, is at risk of getting embedded in a hard-to-break wage-price spiral.

“We may have to adjust our monetary stance further, but …. we have to be fully [aware that the probability of a recession is increasing.”](https://www.financedigest.com/increasing-consumer-awareness-to-fuel-adoption-of-trailer-suspension-system-market.html "Increasing Consumer Awareness to Fuel Adoption of Trailer Suspension System Market") Panetta told a financial conference in Milan.

“If we will have a significant slowdown or even a recession, this would mitigate inflationary pressures,” Panetta said.

Exposing a rift among policymakers, Panetta also argued that [interest rates](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc"), once adjusted for inflation, are “not too far away” from what is considered neutral, which neither stimulates nor holds back growth.

Fellow board member Isabel Schnabel, however, last week argued that real short-term [rates remain deep in negative territory and the ECB](https://www.financedigest.com/instant-view-ecb-sticks-with-big-rate-hike-even-as-bank-fears-roil-markets.html "Instant View: ECB sticks with big rate hike even as bank fears roil markets") was “quite far” from becoming restrictive.

While the ECB has not said where [rate hikes](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") will stop, it said that further “normalisation” will be needed, commonly understood as moving towards the neutral rate.

Markets currently price in 62 basis points of [rate hikes in September and a combined 131 basis points of moves for the rest of the year, suggesting that a rate hike is seen](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May") at each remaining policy meeting.

The top of the [rate hike](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") cycle is now seen at around 205 basis points above the current level.

(Reporting by Francesca Landini; Writing by Balazs Koranyi; Editing by Alex Richardson and Tomasz Janowski)


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