HELSINKI, June 26 (Reuters) - The European Central Bank could gradually reduce interest rates as inflation falls, Italian central bank Governor Fabio Panetta said on Wednesday, arguing that much of the recent concern about sticky services costs is overblown.
The ECB cut rates for the first time in June but has made no explicit commitment about a follow up move, even if policymakers are clear that further cuts are in the pipeline and only the timing is up in the air.
"The current macroeconomic picture is consistent with a normalization of the monetary stance," Panetta said in Helsinki. "The ECB duly started this process a few weeks ago and, in the baseline scenario, it will pursue it gradually and smoothly."
While policymakers keep hinting that July is not the right time for the next move given worrisome wage and price data in recent weeks, Panetta also advised colleagues against such commentary, since they agreed to be data dependent and decide on policy meeting by meeting.
"We should also be cautious in our communications, avoiding the ‘casual’ forward guidance that can arise from implicit or explicit predictions," Panetta, a former ECB board member added.
Panetta also downplayed concerns about the persistence in services costs, arguing that these prices always rise faster than in the case of goods.
"The persistence is only apparent," Panetta said. "It reflects the fact that inflation in the services sector started to rise later, peaked later and started to fall later."
"We have reasons to believe that the stickiness in this sector is not abnormal in any way," Panetta said.
So extinguishing the last of the undesired inflation pressures, often called the last mile, may just require a bit more patience, Panetta argued.
The ECB sees inflation oscillating above its 2% target for the rest of this year but sees disinflation restarting next year with price growth moving to 2% by the close of 2025.
Markets also see more rate cuts with bets now on a move in September and December. (Reporting by Anne Kauranen; writing by Balazs Koranyi Editing by Tomasz Janowski)
