FRANKFURT, Feb 28 — The European Central Bank should take a cautious response to the economic uncertainty caused by the Russian invasion of Ukraine, a senior policymaker said today, as the conflict threatens to increase inflation and choke growth in the eurozone.
“This terrible event has made the need for prudence even greater. The world has become darker, and our steps should be smaller still,” Fabio Panetta, a member of the ECB’s executive board, said in a speech.
Significant uncertainty about the future level of inflation meant the ECB should “adjust policy carefully” to avoid “suffocating the recovery and cement progress towards price stability”, Panetta said.
The pace of inflation has consistently surpassed expectations in recent months and stood at 5.1 per cent in January, a record high for the currency bloc since records began in 1997 and well above the ECB’s target of two per cent.
The central bank had been following a “step-by-step” reduction in its bond-buying programme, the main crisis-fighting tool it has used through the coronavirus pandemic.
As inflation soars, the ECB has come under pressure to accelerate the end of asset purchases and bring forward the prospect of interest rate hikes.
But Russia’s attack on its pro-Western neighbour has shaken economic confidence, throwing growth into doubt while also driving up prices for energy resources like gas and oil — already a significant driver of the current surge in inflation.
Panetta said the ECB would “take any measures necessary, using all our instruments to shore up confidence and stabilise financial markets” in response to the crisis. — AFP
