Fabio Panetta: Monetary policy after the energy shock

Speech by Mr Fabio Panetta, Member of the Executive Board of the European Central Bank, at an event organised by the Centre for European Reform, the Delegation of the European Union to the United Kingdom and the ECB Representative Office in London, London, 16 February 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is a pleasure to be with you here in London today.

The energy shock stemming from Russia's aggression against Ukraine has prolonged and aggravated a sequence of unprecedented supply shocks. These shocks, combined with the reopening of the economy after the pandemic, have driven inflation in the euro area to persistently high levels.

To prevent inflation from becoming entrenched, the ECB tightened its monetary policy stance decisively. We needed to avert second-round effects in the form of a de-anchoring of inflation expectations or a wage-price spiral.

We started to adjust our stance in December 2021. Since July we have increased rates by 300 basis points. We have also started to normalise our balance sheet, which has shrunk by about €1 trillion since its peak. And from March we will reduce our asset purchase programme holdings by an average of €15 billion per month.

After this pronounced tightening, we need to carefully reassess the medium-term outlook for inflation and the risks surrounding it. In this respect, risks to the inflation outlook are now more balanced than at the time of our projections in December.