Recent data point to a weakening eurozone economy, the European Central Bank's Olli Rehn told a German newspaper on Sunday, adding that interest rates would remain at the current level until monetary policy goals have been met.
The ECB has said it aims to keep interest rates at current record lows at least through the summer but its longstanding rate guidance is increasingly out of sync with market expectations due to an economic slowdown. "Yes, the most recent data point to a weakening of the economy," Rehn, the Finnish central bank chief, told Handelsblatt business daily.
He attributed it to greater uncertainties outside the euro zone, such as the trade conflict between the United States and China but also pointed to uncertainty over Brexit, protests in France, fiscal issues in Italy and slower industrial production in Germany. His comments come before an ECB meeting on March 7, when policymakers are widely expected to slash their growth and inflation projections, as the euro zone is experiencing its biggest slowdown in half a decade.
Asked about a shift in market expectations of future rate hikes being pushed back to later in 2020, Rehn said he did not comment on market developments. "But our monetary policy orientation is clear. We have said that rates will be at their current level until we have sustainably reached our monetary policy goal."
Asked whether the ECB would meet its inflation target of just under 2 percent, he said wage increases in recent months had not had much impact on core inflation. "At the end of last year it looked as if there would be stronger momentum in inflation. We have to wait and see how long the period of weaker growth will last," he said.
He also said ECB policymakers would in their coming meetings address the question of Targeted Long-Term Refinancing Operations (TLTRO). What form any instrument would take would be crucial as it would determine its impact, said Rehn. There was still time before the summer for any decision to be made and that would be based on data for the whole euro zone, not for a single country, he said.
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