WASHINGTON (Reuters) -European Central Bank policymaker Olli Rehn on Thursday played up the chance of an interest rate cut in June as the ECB’s new forecasts “may well” point to inflation falling too far.
The ECB cut rates for the seventh time in a year last week and warned that economic growth will take a big hit from U.S. tariffs, bolstering bets for even more monetary policy easing.
Rehn, who is Finland’s central bank governor, raised the prospect of a further cut in June and joined a chorus of policymakers warning about the dampening impact of trade snags on inflation, including a stronger euro and weaker economic activity.
“It is quite possible that the projections for medium-term inflation under the current circumstances may well be below our (2%) target,” he told a conference organized by the Reinventing Bretton Woods Committee in Washington during the spring meetings of the International Monetary Fund and World Bank.
Rehn said earlier on Thursday that this scenario would justify a rate cut, which would take the rate that the ECB pays on bank deposits to 2%.
Speaking earlier at the same event, Lithuanian central banker Gediminas Simkus even raised the spectre of a “deflationary environment” in Europe.
ECB President Christine Lagarde refused to provide guidance about future moves in her press conference last week, saying they would depend on incoming data and policymakers would act with “readiness and agility” given the elevated uncertainty.
Philip Lane, the ECB’s chief economist, said there was no single right way of dealing with uncertainty, and the euro zone’s central bank might cut rates more slowly or quickly depending on the circumstances.
“If you say, uncertainty means … you go more slowly or you go in smaller steps, (that’s) sometimes true,” Lane told a conference at the Peterson Institute for International Economics in Washington. “In other configurations … to grapple with the uncertainty, you go big. So I think to be able to say that baseline is not the only guidance, I think it’s super important.”
Lane dismissed, however, the prospect of resuming bond purchases or other extraordinary stimulus measures because the ECB still has room to cut rates.
Klaas Knot, the Dutch central bank’s president, and his French peer Francois Villeroy de Galhau said earlier this week that inflation may fall initially as a result of tariffs and the associated uncertainty. But they were less sanguine about the medium-term implications.
(Reporting by Francesco Canepa; Editing by Paul Simao)
