ECB to keep flexible approach as Israel-Iran war heightens risks, Panetta says

By Valentina Za

MILAN (Reuters) -The European Central Bank will keep a flexible approach to monetary policy decisions against a backdrop where the conflict between Israel and Iran has compounded risks from Washington's trade policy, a top policymaker said on Wednesday.

ECB Governing Council member Fabio Panetta, who heads Italy's central bank, said euro zone inflation was likely to remain below the 2% target for an extended period, against a "persistently weak" economy, based on current projections.

Speaking on the sidelines of a separate event in Milan, fellow ECB policymaker and Bank of Portugal Governor Mario Centeno said the weakness of the euro zone economy was worrying and posed a threat to the ECB's inflation target.

Data released on Wednesday by Eurostat confirmed that consumer prices rose 1.9% in May from a year ago.

Panetta, at a Milan banking conference, pointed to "substantial and difficult-to-quantify risks" for the economic outlook stemming from the U.S. trade policy and the situation in the Middle East.

"Against this backdrop, the ECB's Governing Council, at its most recent meeting, reaffirmed a flexible approach, keeping its options open," he said.

"It will continue to take decisions on a meeting-by-meeting basis, without pre-committing to a defined course for monetary policy."

The ECB signalled a pause in policy easing this month despite projections showing price growth dipping below its 2% target temporarily due to the strong euro and low oil prices, reviving worries that the ultra-low inflation environment of the pre-pandemic decade could return.

"We are very worried about growth in Europe because it's not coming, and if it's not coming inflation won't be at 2%," Centeno told reporters.

"We need a stronger economy to be compatible with 2% inflation, that's my main position," he said on the sidelines of the Young Factor conference in Milan.

(Reporting by Valentina Za, editing by Gianluca Semeraro, Jane Merriman and Bernadette Baum)

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