Italy central bank chief says time for interest rate cuts is ‘fast approaching’

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Italy’s new central bank chief has said the time for cutting interest rates is “fast approaching” and dismissed fears of a fresh inflationary spiral, in the latest sign that pressure is mounting to loosen eurozone monetary policy.

Fabio Panetta, who became head of the Banca d’Italia in November, said inflation in the euro area was falling faster than expected, challenges were intensifying for Europe’s already stagnant economy and recent data “clearly point to ongoing disinflation”.

“Fears that inflation would stop falling after the initial rapid decline — the ‘last mile problem’ — now appear unwarranted: inflation is falling at the same rate or faster than it has risen,” Panetta said in a speech on Saturday.

He added that after the eurozone economy stagnated for five quarters, with the region’s industrial sector “in recession” and bank lending slowing, “disinflation is at an advanced stage and progress towards the 2 per cent target [for inflation] continues to be rapid”.

“The time for a reversal of the monetary policy stance is fast approaching,” added Panetta, one of the most dovish voices on the European Central Bank’s rate-setting governing council.

Eurozone inflation has declined rapidly from its record high of 10.6 per cent in October 2022, after a surge in energy and food prices faded. In January, annual price growth in the bloc was 2.8 per cent, close to the ECB’s target of 2 per cent.

Investors are betting the ECB will start cutting borrowing costs as early as April. But the likelihood of that receded last week after other rate-setters warned there were still risks of fresh pressure on prices.

Isabel Schnabel, an ECB executive board member, told the Financial Times: “We must be patient and cautious because we know, also from historical experience, that inflation can flare up again.”

ECB chief…