The European Central Bank (ECB) may have already regretted its decision to cut interest rates in June, but one Governing Council member thinks fears of moving too quickly are overblown.

Speaking at a banking association conference in Rome, Bank of Italy Governor Fabio Panetta said the ECB has a clear path to lower interest rates. In his view, sticky service inflation doesn't change that game plan.

“Concerns are not unwarranted, but they need to be put into perspective, as services prices tend to move differently from those of goods,” Panetta said, as reported by Bloomberg.

Annual eurozone inflation moderated to 2.5% in June, but service prices accelerated 4.1%. It was a notable rise from just a few months earlier when service inflation was 3.7%.

Despite the uptick in service costs, Panetta said, “past key rate hikes are still squeezing demand, production, and inflation, and will continue to do so in the coming months.”

He added, “The reduction in key interest rates will continue at a gradual pace, accompanying the return of inflation to the target, if macroeconomic developments remain in line with the ECB Governing Council’s expectations.”

Panetta’s confidence is in stark contrast to commentary from other top central bankers, who cautioned the public not to expect a quick succession of rate cuts.

An ironic rate cut

The ECB’s June policy decision was arguably one of the most ironic rate cuts in recent memory. As macro analyst Sven Henrich observed at the time, “ECB cuts rates while increasing its inflation forecast. Perfect.”

Other experts, such as M&G Investments portfolio manager Rob Burrows, agree, claiming it makes little sense to cut rates when inflation is accelerating.

Burrows said ECB officials “almost boxed themselves into a bit of a corner” with the decision to cut, which had been telegraphed to the markets for several months.

The ECB seems keen not to make the same mistake again. Last week, President Christine Lagarde said policymakers will be careful not to cut interest rates too quickly due to lingering service inflation.

Other executives, such as Irish central bank governor Gabriel Makhlouf, said there’s no certainty about “how fast we’re going to carry on, if at all” in terms of additional rate cuts.

In a recent interview with German daily newspaper Tagesspiegel, Bundeskbank President Joachim Nagel said inflation won’t return to its 2% target until late 2025.

That implies policymakers are in no hurry to reduce interest rates.