FRANKFURT (Reuters) -The European Central Bank may cut interest rates below the neutral level that keeps the economy in balance, ECB policymaker Olli Rehn said on Monday, adding that that euro zone inflation may come in lower than expected as a result of U.S. tariffs.
The ECB cut its benchmark rate to 2.25% earlier this month, reaching the upper range of the 1.75%-2.25% range it sees as neutral, and governors are becoming more confident about a further reduction in June.
Rehn, asked under what conditions the ECB may cut by more than its usual 25 basis points at a time, seemed to keep all options open.
“We must analyse all options with an open mind and not a priori rule out rate cuts below the neutral rate,” he told an event organised by LC Macro Advisors.
“The full freedom of action relates not only to the timing of rate changes. In the current environment we should not restrict ourselves in advance.”
Rehn, Finland’s central bank governor, added that underlying price pressures were easing and U.S. trade tariffs were mostly increasing downside risks to inflation.
Rehn, who is part of a new task-force that will look at ways of simplifying rules for banks, also said there were excessive reporting burdens but “sturdy” capital requirements were still needed.
“Simplifying is possible but we should avoid deregulation,” he said.
“We have to maintain sturdy capital buffers in order to maintain the resilience of the European banking and financial system.”
(Reporting By Francesco CanepaEditing by Tomasz Janowski and Gareth Jones)
