ECB’s Rehn Sees More Grounds for December Interest-Rate Cut
(Bloomberg) -- The European Central Bank will continue to ease policy in the coming months, Governing Council member Olli Rehn told Finnish newspaper Helsingin Sanomat.
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Inflation has slowed to the targeted 2% and euro-area economic growth is fragile, Rehn said in an interview. “These factors have added to the grounds for cutting the benchmark rate in December and this direction in monetary policy is set to continue into the coming months.”
The Finnish central banker declined to specify whether he backs a 25 basis-point or a 50 basis-point reduction at the Dec. 11-12 decision, saying “it’s important always to retain room for maneuver, even if some sort of communications on the direction is well founded.”
A quarter-point interest-rate cut next week is widely expected. Such a move would be the fourth in this cutting cycle and would bring the deposit rate to 3%. What happens after that is less clear, as geopolitical uncertainty weighs on the outlook.
Speaking separately to Politico, Rehn’s Croatian counterpart said that the ECB should continue moving gradually as it eases monetary policy.
“When the road is slippery, you take small steps and this is what we are doing,” Boris Vujcic said in an interview published Wednesday. “I saw the Governing Council being on the same page and I don’t really believe that it will be much different in the coming meetings.”
Both policymakers generally occupy center ground on ECB policy, though Vujcic is more hawkish and Rehn tends toward the doves.
Rehn also told Helsingin Sanomat:
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Service inflation continues to run a bit too fast, mostly due to relatively large wage increases
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In light of current data, a return to zero rates is “not likely” and that should inflation slow excessively, ECB has unconventional monetary-policy tools at its disposal
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Neutral rate would be about 2.5%, and it’s “likely” that level will be attained in late winter, “which in Finland can mean anything between January and June”
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The European Union needs proactive strategic thinking in its trade relations with the US, given a “clear” risk of weakening trade relations
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EU should prepare for the US to impose tariffs, and also for the US imposing tariffs on China, which could cause China to dump goods excessively cheaply in Europe
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--With assistance from Niraj Shah (Economist).
(Updates with Vujcic starting in fifth paragraph)
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