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ECB Retains Full Freedom to Act Amid Uncertainty, Rehn Says - BLOOMBERG
(Bloomberg) -- The European Central Bank is keeping its options open as geopolitical shifts weigh on the global economy, according to Governing Council member Olli Rehn.
At an event organized by MNI, the Finnish central-bank chief said “exceptional uncertainty” is slowing the recovery of the euro zone’s 20-nation economy. Inflation, meanwhile, is “stabilizing” at the 2% target.
“The Governing Council wants to retain full freedom of action, especially in our current times of pervasive uncertainty,” he said Tuesday. “We are not pre-committed to any particular rate path.”
The outlook for ECB borrowing costs is less certain after six cuts since June that have brought the deposit rate to 2.5%. Policymakers are struggling to assess multiple risk factors — from US trade tariffs to the war in Ukraine and domestic fiscal policy. That’s left officials less sure about the prospects for inflation and economic expansion.
Rehn’s Croatian counterpart, Boris Vujcic, said April’s policy meeting “is completely open.”
“By the time of the meeting we’ll get the relevant data, and then we’ll decide in which direction we’ll go,” he told reporters Tuesday in Zagreb.
Analysts see two more rate reductions — next month and in June. Markets have pared bets and now see only one or two cuts this year, including a possible pause on April 17.
While hundreds of billions of euros in higher spending in defense and infrastructure in Europe could fuel growth and inflation, US tariffs threaten to hit activity, with the effects on inflation still unclear.
Rehn expects a more sizable blow to output. “The negative impact on growth from a trade war is or would be larger than the impact on inflation,” he argued.
He said Europe’s investments should boost the economic outlook over the medium term. In the meantime, the effect of the rate hikes enacted in recent years to tame inflation remains visible.
“I would still qualify financing conditions as tight even though we have probably bottomed out and we are seeing some easing in in financial conditions,” Rehn said.
--With assistance from Jasmina Kuzmanovic.
