Important speech from @ecb's Fabio Panetta: "There is a strong case for our reaction function to be asymmetric, as the risks of a policy overreaction are much smaller than the risks of policy being too slow or too shy to react." (1/n) ecb.europa.eu/press/key/date…
It's increasingly clear that some divergence in views has emerged among EB/GC members. Panetta adds a personal touch to his very dovish remarks today, joining forces with ECB Chief economist Philip Lane and his two-stage approach. (2/n)
It's also clear what Panetta and Lane will advocate.
"The outlook we face is not satisfactory yet."
"If we encounter shocks that pose additional threats to price stability, our reaction function is clearly spelled out: a policy response is necessary and forthcoming." (3/n)
Panetta's insistence on the "forward-looking" nature of the ECB's policy response and the need to "recalibrate" the amount of policy support in reaction to the balance of risks (though it should be obvious) sounds like a clear signal to the hawks, and to @Lagarde. (4/n)
Last but not least, policy coordination has become explicit, with fiscal support needed "for a long time". It can't be taken as granted though, hence the need for the ECB to err on the cautious side. Better safe than sorry.
We think this dovish view should and will prevail. (5/5)
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