ECB’s Rehn: Core Inflation Must Be on Clear, Sustainable Downtrend for Rate Hikes to End
17 May 2023
By David Barwick – FRANKFURT (Econostream) – Core inflation has to be headed lastingly downward for the European Central Bank to stop hiking interest rates, ECB Governing Council member Olli Rehn said on Thursday.
In a speech at a forum of the Bank of Finland, which he heads, Rehn echoed his own comments of last week in calling inflation ‘still far too fast’ and remarking that in particular, core inflation ‘has proven to be annoyingly tenacious.’
‘Interest rate decisions are evaluated, of course always on the basis of the latest data, how core inflation, net of energy and food prices, will develop and, on the other hand, how well monetary policy will bite’, he said.
‘We need to see that core inflation is clearly and sustainably on a downward trend before we stop tightening monetary policy’, he said.
Monetary policy was now dampening demand and should not be loosened early, he said.
Price stability can be attained without a needless toll taken in terms of output and jobs, he said.
European bank regulation reforms in the last decade and a half ‘have significantly strengthened banks' buffers and crisis resistance’, he said. ‘However, we should not be lulled into any false sense of security. Economic history has shown that major changes in the economic environment – such as a sudden rise in interest rates – can destabilize the financial system in unexpected ways. All the consequences of the rise in interest rates have not yet been seen.’