ECB’s Rehn: Must Monitor Risks of Inflation Dis-anchoring in Either Direction

13 June 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Olli Rehn on Friday said that the ECB had to watch for signs of inflation escaping control to both the upside and the downside.

In a speech at the OECD in Paris, Rehn, who heads the Bank of Finland, said, ‘For now, looking at headline inflation, we are in a good place: inflation has returned to around 2%, which is our medium-term target.’

However, monetary policy had to confront the danger of becoming complacent and allowing a sudden change to occur, he said.

‘Therefore, we must stay vigilant and monitor risks of inflation de-anchoring – to both directions’, he said. ‘As inflation is projected to stay below 2% in 2026, we must be mindful of not slipping towards the zero lower bound again, as happened in the 2010s.’

‘Especially, we must focus on keeping the inflation expectations firmly anchored to our 2% target’, he continued. ‘That’s why Team ECB will remain alert and be ready to act with agility and determination, as and if needed.’

Trade tensions made the outlook unclear, he said. Even the ECB’s recently published alternative scenarios did not take everything into account, omitting major financial market turmoil, he noted.

This was the context of the ECB’s decision last week to cut rates again, he said. ‘With uncertainty ahead, we retain full freedom of action and remain committed to price stability’, he said.

According to Rehn, conditions for euro area economic activity to pick up were still favourable. In this connection, he cited wage growth, strong labour markets and easier financing conditions. As well, increased defence spending would also support growth, he said.