The Governor of the Bank of Finland and member of the Governing Council of the European Central Bank (ECB), Olli Rehn, has strongly urged his colleagues to pay attention to the risks of slowing inflation, according to a Finnish daily newspaper, Helsingin Sanomat.
During an interview with the Finnish newspaper published on Saturday, November 15, Rehn highlighted that reduced energy prices, lowered wage and service inflation, and a stronger euro could result in the overall inflation dropping significantly compared to their 2% target.
“This risk should not be taken lightly,” the governor added when asked whether the ECB might reduce interest rates again in December. However, Rehn also stated that there are risks of escalating inflation to consider.
Therefore, with inflation near ECB’s 2% goal, investors and economists do not expect sudden alterations to the deposit rate. Notably, the deposit rate has decreased approximately eight times during this cycle, from 4% to 2%.
Rehn warned that the stock markets are clearly in danger of a crash
The euro area economy has demonstrated impressive performance despite US President Donald Trump’s tariff policies interfering with global trade. According to reports from the governor of the Bank of Finland speaking to Helsingin Sanomat, the growth experienced in this single-currency region is slow but steady.
Rehn, also the Governor of the International Monetary Fund for Finland, weighed in on this progress. He warned that the stock markets are clearly in danger of a crash. His remarks highlighted the importance of banks maintaining strong capital buffers.
This was after Rehn acknowledged that stock prices are high due to the rise of AI in the US, although actual economic growth and firm profits are not surging as quickly. Therefore, according to the governor, such a scenario needs them to exercise caution.
In the meantime, sources mentioned that Rehn is running for the vice president of the ECB, with support from Finnish Finance Minister Riikka Purra. On the other hand, Latvia, a member of the European Central Bank system, has announced that it will propose a candidate for the six-member Executive Board. However, whether Martins Kazaks will be the central bank governor has not been confirmed.
The euro zone’s different growth rate sparks concerns for the ECB
Analysts have recently discovered that the eurozone’s economic expansion is masking a gap, with almost half of the region experiencing either no growth or contraction. This situation ignited concerns for the European Central Bank as it weighed whether more rate cuts were necessary.
This finding was noted after reports released on Friday, November 14, demonstrated that output rose 0.2% in the third quarter compared to the last three months. These results sparked optimism among investors that recovery was picking up speed.
However, an analysis revealed that nations accounting for 49% of the eurozone’s overall economic output did not experience any growth during this period. To support this claim, the analysis mentioned that Germany, the largest economy in Europe, and Italy both encountered no progress.
According to sources, this is a problem the European Central Bank is aware of. This was after the Vice President, Luis de Guindos, said earlier this month that officials should note the different growth rates.
In their meeting in September, the bank officials expressed concerns that Spain’s strong economic performance was primarily due to a rapid expansion rate, while other nations were struggling.
Meanwhile, sources stated that although the central bank reduced borrowing costs eight times, this situation may not alone prompt policymakers to pursue further rate cuts. Still, it will be a consideration as they begin to view other risks to inflation, such as a possible delay in the European Union’s carbon pricing plan.
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Source: https://www.cryptopolitan.com/ecb-urges-attention-to-slowing-inflation/
