ECB’s Rehn: ‘The Journey Is Not Over Yet’

1 June 2023

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is not yet finished hiking interest rates, ECB Governing Council member Olli Rehn said on Thursday.

In a speech at a Bank of Japan conference in Tokyo, Rehn, who heads the Bank of Finland, said that official euro area borrowing costs had recently reached restrictive territory and that ‘it is essential that we see a steady and sustained decline in underlying inflation before we start considering easing the policy again.’

The Council would make its monetary policy decisions based on available information, he said, adding that ‘[t]he journey is not over yet.’

Inflation prospects remained ‘too high for too long’, whilst ‘some indicators’ of long-term expectations had crept up and should thus be watched, he said. Mounting expectations were a risk to inflation, and the risk was exacerbated by continued elevated inflation readings, he said.

Were expectations to be formed on the basis of actual inflation, it ‘would be a dangerous development and must be decisively avoided’, he said.

Rehn said that monetary tightening was unquestionably impacting financial conditions, but that the force of transmission to the real economy was subject to some doubt.