ECB's Panetta Warns of Worsening Price Outlook and Signals Further Rate Hikes Ahead

European Central Bank Governing Council member Fabio Panetta warned on October 30 that the outlook for prices is worsening and that further increases in policy rates could prove necessary to bring inflation under control. Panetta said inflation is expected to remain above the ECB's 2% target for several quarters, adding that the rise in core inflation could become more pronounced in early 2027.

Panetta also flagged that rising long-term yields must be factored in when the ECB gradually calibrates its monetary policy stance, acknowledging the interplay between market conditions and rate decisions. He left the door open to a policy pivot, noting that the ECB can adjust its stance promptly if the international situation improves or if financial tensions begin to act as a brake on inflation.

On a separate note, Panetta said there is room for further upgrades to Italy's sovereign credit rating, a comment that will be closely watched given Italy's elevated debt load and its sensitivity to ECB tightening.