European Central Bank's Interest Rate Policy

ROME (Reuters) – The European Central Bank must avoid the risk of cutting interest rates too slowly and lowering inflation excessively, Governing Council Member Fabio Panetta said on Thursday.

In a speech at a banking conference in Rome, Italy's central bank governor emphasized that euro zone monetary conditions remain restrictive and need to be eased further.

> "With the decline in inflation, we need to pay attention to the weakness of the real economy," said Panetta, who is considered a monetary policy dove.

He cautioned that "in the absence of a firm recovery we would run the risk of pushing inflation well below target and creating a situation that monetary policy would struggle to counter, and which must be avoided."

The ECB cut its key interest rate by 25 basis points to 3.25% this month – its third cut this year.

Policymakers are now debating how far interest rates may need to fall and how to signal their plans to investors.