ECB’s Rehn: Medium-Term Inflation Risks Slightly Tilted to Downside

7 December 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Olli Rehn on Saturday said medium-term inflation risks were “slightly tilted to the downside,” with subdued energy prices, a stronger euro and moderating services and wage pressures weighing on the outlook.

Rehn, who heads the Bank of Finland, told Italian newspaper Milano Finanza in an interview published on Saturday that euro area inflation had stabilized around the ECB’s 2% target and that the decline from the 2022 peak had occurred “without mass unemployment or a significant reduction in economic growth.”

Slightly weaker dynamics in 2027 and the introduction of a 2028 projection would clarify the medium-term path, he said, adding that the effect of ETS2 should not be overstated because its impact was mostly on the price level and was uncertain.

Turning to projected undershooting, Rehn said any assessment would depend on data and expectations. The ECB’s symmetric target meant deviations on either side were “equally undesirable,” but “if deviations from the target remain small and are not long-lasting, then they do not necessarily justify any particular action,” he said, citing recent remarks by President Christine Lagarde.

On prospects for further easing, Rehn said the Governing Council should avoid imposing “unnecessary straightjackets” such as a presumed high bar for cuts. Decisions would remain meeting-by-meeting, he said.

He judged 2025 to have been resilient but not dynamic, and said stronger progress on the Savings and Investment Union, the single market, competitiveness and the green transition was needed. Growth in 2026 would remain modest unless governments acted decisively on common defence, digital sovereignty and decarbonization, he said.

Even so, he rejected the suggestion that the ECB could operate on autopilot. “We must always remain agile and active, if the data and projections so require, in order to maintain the inflation target,” he said.

On the operational framework, Rehn said structural refinancing operations and a structural bond portfolio would come only once the balance sheet had declined further and liquidity normalised. Work would continue in 2026, but no fixed deadline should be set.

Rehn warned that a loss of Federal Reserve independence would have negative spillovers for Europe via higher inflation expectations and political contagion. The ECB’s independence, protected by the Treaty, had not been questioned, he noted.

The Finnish government’s support for his nomination as ECB vice president reflected his long experience, he said. He likened the role to that of a midfielder facilitating “team play.”

On Ukraine, Rehn said an Article 122-based EU solution drawing on frozen Russian assets was “a very reasonable way forward” and that any role for the ECB in such financing would violate the Treaty.

He reiterated support for a euro-area safe asset, saying Europe should have embraced its “Hamiltonian moment” earlier, especially given defense-investment needs.

Financial-stability risks stemmed from elevated asset valuations relative to economic fundamentals and earnings, he said.

Crypto-asset markets remained small but were growing, and stablecoins posed risks via potential mass redemptions. MiCAR would need updating to ensure consistency and limit multiple issuances, he said, adding he saw little economic rationale for holding stablecoins, though their issuers benefited from seigniorage.