Published by Global Banking & Finance Review®
Posted on March 26, 2025
2 min readLast updated: January 24, 2026
Add as preferred source on GoogleFabio Panetta urges the ECB to focus on inflation projections for setting interest rates, rather than calculating a neutral rate, to achieve its 2% target.
ROME (Reuters) - The European Central Bank must be pragmatic and data-driven in setting its interest rates, governing council member Fabio Panetta said on Wednesday in a letter to the Financial Times.
Panetta, who is the governor of the Bank of Italy, said in the current period of acute uncertainty the ECB should focus mainly on inflation projections rather than on trying to calculate a supposed neutral interest rate.
The ECB has cut interest rates six times since last June but provided few signals about its next move after the most recent reduction of its key deposit rate to 2.5% at its March meeting.
Panetta, widely considered an interest rate dove, said calculating a neutral rate, known as "R-star" is a moving, invisible target that can only be estimated through surveys or models that are "riddled with uncertainty."
He warned the ECB against "fixating" on whether its policy stance should be qualified as "restrictive" according to an R-star calculation, when instead it should focus on inflation and on whether the stance is appropriate to reach its 2% target.
"Overall, macroeconomic indicators and projections suggest there is still work to do," he said.
(Reporting By Gavin Jones, editing by Cristina Carlevaro)
The main topic is the ECB's approach to setting interest rates, focusing on inflation projections rather than neutral rate calculations.
Panetta believes inflation projections are more reliable than neutral rate calculations, which are uncertain and difficult to estimate.
The ECB aims to reach a 2% inflation target.
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