ECB’s Rehn: To Gradually Reduce Purchases, But Ready to Use Full Toolkit as Situation Requires
20 January 2022
By David Barwick – FRANKFURT (Econostream) – The European Central Bank will gradually reduce its asset purchases but at the same time is ready to react in any direction to changes in the macroeconomic environment, ECB Governing Council member Olli Rehn said on Thursday.
In a speech at a meeting of the Association of Finnish Local and Regional Authorities, Rehn, who heads the Bank of Finland, said that the euro area recovery was continuing, albeit ‘in the shadow of a pandemic.’
‘The economic recovery and the projected return to inflation towards their target will allow the ECB's monetary policy purchases to be gradually reduced’, he continued. ‘As the situation changes in one direction or another, the ECB is ready to use its full toolkit quickly and flexibly.’
The factors driving high inflation ‘will not, as such, lead to a long-term acceleration of inflation, unless they lead to large multiplier effects, a spiral in prices and wages’, he said. ‘Wage inflation in the euro area has so far been moderate. However, in the current exceptional circumstances, inflation forecasts are also subject to great uncertainty.’
Despite strong economic growth and rapidly improving labour markets, the pandemic is ongoing ‘and the road ahead can be very bumpy’, he said. ‘The various effects of the Corona crisis, including accelerating inflation, are being felt strongly in the economy.’
The pandemic will end when it ends everywhere, he said, citing the Omicron variant as evidence of this. Until this occurs, economic forecasting will be subject to more uncertainty than otherwise, he said.