Having raised rates by half a point in December, the ECB is likely to raise rates by another 50bps when it meets next week, Executive Board member Fabio Panetta said in an interview Tuesday. But subsequent moves should guided by both by incoming data and the medium-term outlook for growth and inflation. “It was reasonable to increase rates in December and signal a similar step in February,” Panetta said. “But beyond February any unconditional guidance – that is, guidance unrelated to the economic outlook – would depart from our data-driven approach.”

March’s Eurosystem staff projections offer an opportunity to reassess the situation and provide clarity over the ECB’s reaction function, Panetta said. “Depending on this assessment, we may decide that more or less tightening is needed compared to what we envisaged in December."

Rising interest rates are unlikely to be a source of economic risk to Italy, Panetta said, with fiscal policy having so far remained "prudent" and any unexpected increase in market yields unlikely to have more than a limited impact on the country's near-term funding costs.