(Bloomberg) -- European Central Bank interest rates will continue to head lower as inflation starts to stabilize around the 2% goal, according to its Governing Council member Olli Rehn.
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“The direction of our monetary policy is now clear,” Rehn said Tuesday in Helsinki. “The speed and scale of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis.”
ECB policymakers are determining how quickly and how far to lower borrowing costs in 2025 after four quarter-point moves this year. With inflation now almost back at target, analysts reckon the deposit rate will be decreased to 2%, from 3% now, by mid-next year. Investors see a slightly more aggressive loosening campaign, ending at about 1.75%.
Rehn’s remarks echo those of Executive Board Member Isabel Schnabel, who said late Monday that reductions in rates can continue as confidence in inflation moderating to 2% rises. She stressed, though, that further moves should be gradual — a term used by several policymakers that’s understood to mean quarter-point increments.
Slovak central-bank Governor Peter Kazimir reiterated Tuesday that he backs only gradual moves at the ECB’s upcoming meetings, saying he considers inflation risks to now be “well balanced.”
“Once we reach around 2.5%, we’ll start seriously considering the issue of the neutral rate, and whether we should shift from a restrictive policy to a more neutral or accommodative stance,” he said.
Rehn reaffirmed that the deposit rate is likely to reach neutral levels, which neither stimulate nor restrict economic activity, in the first half of next year.
While the euro zone’s struggling economy is expected to improve a little in 2025, Rehn flagged manufacturing as “weak” and warned that uncertainty over global trade is hampering the outlook.
“Trade and security policies have rarely been so intertwined as they are in Europe currently,” he said. “The last thing we need is a trade conflict between allies.”
Seeing negotiations as a preferred way forward, Rehn — a former European Union commissioner — said the bloc’s negotiating position “can be strengthened by demonstrating in advance that it is ready to take countermeasures if the US threatens Europe with higher tariffs.”
--With assistance from Daniel Hornak.
(Updates with Kazimir, more comments from Rehn starting in fifth paragraph.)
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