ECB Interest Rate Cut Justifications

HELSINKI (Reuters) – The slowdown of inflation in the euro area presents stronger arguments for an interest rate cut at the ECB’s upcoming October policy-setting meeting, according to Finnish ECB policymaker Olli Rehn in a speech on Tuesday.

The euro zone has been on the brink of recession for most of the year, with price pressures easing more than anticipated, highlighting concerns that the ECB may not be adequately supporting a struggling economy.

“Recent statistical data has provided further confirmation that inflation is slowing down. In my view, this means that there are now more reasons to justify a rate cut at our October meeting,” stated the Bank of Finland governor.

Rehn noted that the recent decline in the growth outlook for the euro area also supports the argument for an interest rate cut.

“However, we should closely monitor the data and conduct a comprehensive analysis before making decisions, as always,” he added.

The ECB’s Governing Council will determine the pace and extent of future rate cuts during their meetings.

He also mentioned that the euro area inflation rate is expected to stabilize at the ECB’s target of 2% by 2025.

Rehn emphasized the need for Europe to enhance productivity, pointing out that rising energy costs due to Russia’s invasion of Ukraine have negatively impacted industrial output in the region.

“If significant reforms cannot be achieved, a more permanent weakening in manufacturing would threaten the euro area’s competitiveness,” he warned.