ECB’s Rehn on 50BP Cut In December: Should Retain Room to Maneuver

4 December 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Olli Rehn said on Wednesday regarding the size of December's rate cut that the ECB should preserve sufficient room to react.

In an interview with Helsingin Sanomat, Rehn, who heads the Bank of Finland, said that ‘it’s important always to retain room for maneuver, even if some sort of communications on the direction is well founded.’

The process that has brought inflation close to 2%, along with weak economic activity in the Eurozone, were arguments to back a cut in December, he said, and this trend in monetary policy would continue in the near future.

Services inflation was still high, according to Rehn, but the ECB expected it to slow in the first part of 2025.

‘At the same time, economic growth is subdued, because industry has developed poorly, especially in Germany, and the outlook is still subdued’, he said.

Despite acknowledging that the neutral interest rate was a ‘good analytical tool’ to analyse monetary policy, it was a not a tool to deliver monetary policy, he said.

‘Taking into account the 2% inflation target, it can be concluded that the policy interest rate at the level of 2.5% would be at a neutral level’, he said.

For Rehn, the neutral rate could be reached in the first half of next year.

If Donald Trump were to impose new tariffs on China, there was a ‘clear risk that China would start selling products to Europe at dumping prices’.