ECB’s Rehn: Better to Play It Safe and Maintain Significant Policy Accommodation

8 April 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank should play it safe in the current situation and keep a significant degree of monetary accommodation in place, Governing Council member Olli Rehn said on Thursday.

In an interview with CNBC, Rehn, who heads the Bank of Finland, said that ‘it’s of course good that we have good news, but I would not jump the gun yet’, given there is ‘still plenty of uncertainty about the speed of vaccine rollout, about the possible extent of virus mutations.’

‘But yes, in the second half of this year and next year, we see the recovery strengthening and certainly the outlook in this sense is more positive’, he continued. ‘But in terms of policy response, it is better to be safe than sorry and maintain a sufficient degree, a significant degree of accommodation in monetary policy in order to build a sturdy bridge over these troubled waters of the corona pandemic.’

According to CNBC, Rehn said monetary authorities were ‘ready to recalibrate our purchases as needed and in that sense, as I said, I would be rather cautious in this regard as I think it is better to be safe than sorry and see that we genuinely have a sustained recovery in the economy before we move to the exit gear in terms of monetary accommodation.’

There are ‘both upside and downside risks, depending on the speed of the vaccine rollout and the extent of virus mutations’, he said. ‘In this context, the best approach in monetary policy is simply to keep calm and stay the course.’

The US fiscal stimulus would have ‘perhaps a bit less than a half percentage point of GDP impact in Europe, which is important and positive’, he said.

Rehn said the recent increase in long-term yields was due both to spillover effects from the US as well as an improved outlook here. ‘What is the relative share of these two it’s difficult to say, but both play a role’, he said.