ECB’s Rehn: Neutral Rate Should Not Be a Constraint in Cutting Rates Further

28 April 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Olli Rehn said on Monday that the ECB’s monetary policy should not be limited by the neutral rate.

Speaking in the LC-MA Forum, Rehn, who heads the Bank of Finland, said that the ECB should be attentive to potential deviations from its symmetric 2% inflation target.

‘If inflation is projected to fall below our 2% inflation target over the medium term, then the right reaction is to cut rates further’, he said. ‘I think it is important that we do not let any thresholds, such as an estimated neutral rate, constrain us.’

The ECB’s monetary policy should now be ‘agile and active’, he said.

‘We must analyse all options with an open mind and not a priori rule out rate cuts below the neutral rate’, he said.

The central bank should retain freedom of action with respect to the timing of interest rates moves but also to the level of rates, he said.

‘In the current environment we should not restrict ourselves in advance’, he said.

The negative impact of US tariffs on growth would be felt in the short, medium and long term, according to Rehn.

Markets were correct in expecting inflation to fall in the short-term due to tariffs, he said.

‘Taking into account these developments, I find it reasonable to assume that there are downside risks to the inflation outlook in the ECB’s March projections’, he added.