ROME, July 7 (Reuters) – The outlook for the euro zone economy remains fragile, a top European Central Bank policymaker said on Tuesday, calling for monetary policy decisions to be tested against a range of scenarios given the deep global shifts occurring.
“The world has entered what we may call a ‘Great Reconfiguration’,” ECB Governing Council member and Bank of Italy Governor Fabio Panetta said at a research conference in Rome on the challenges for monetary policy transmission.
“The outlook remains fragile. Upside risks to inflation continue to coexist with downside risks to growth,” Panetta said in a speech.
“This requires constant monitoring of geopolitical developments, energy markets, supply chains, wages and inflation expectations. It also requires that monetary policy avoid committing to a predetermined path,” he added.
Panetta said talks between the United States and Iran may lead to lower energy prices than anticipated in June when the ECB became the world’s first major central bank to raise interest rates on the Iran-war induced energy shock.
Policymakers are now debating whether a follow up move is needed to contain price pressures.
Panetta said June’s interest rate decision “was judged to be robust across a range of scenarios. This reflects a key principle of policy making under uncertainty.”
The latest energy shock occurred on the backdrop of a global transformation brought about by “geopolitical fragmentation, artificial intelligence and digital finance, population ageing and climate change”, he added.
(Reporting by Valentina Za, editing by Alvise Armellini)
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