Ren said, "If you look at the market data, you will find that this means there will be two more interest rate cuts this year, and by the end of this year, the interest rate will be 3.25%." "As long as we can see that the process of deflation is continuing and prices are moving towards our medium-term symmetric target of 2%, there is reason to continue cutting interest rates."
Olli Rehn, member of the European Central Bank committee and governor of the Bank of Finland, believes that investors' expectation of two more interest rate cuts by the European Central Bank within the year, and a reduction of interest rates to 2.25% next year, is reasonable.
Rehn told the media on Tuesday (June 25th) that while officials must ensure that the inflation rate returns to 2%, they should not excessively suppress economic activity. "If you look at the market data, you will find that this means there will be two more interest rate cuts within the year, and by the end of this year, the interest rate will be lowered to 3.25%."
Source: Bank of Finland social media account.
Earlier this month, the European Central Bank lowered the benchmark interest rate from 4% to 3.75%, the first interest rate cut since 2019. At the time, President Lagarde said that the bank would continue to follow a "data-dependent and gradual meeting supervision" approach and that it would not "pre-commit to a specific rate path."
The market estimates that there is still a 45 basis point rate cut space by 2024. Rehn pointed out that the European Central Bank will not pre-commit to any specific path, but he clearly stated that the expectation of further interest rate cuts is reasonable. He added, "The final interest rate will be around 2.25% or 2.50%. In my opinion, this is a reasonable expectation."
Rehn said, "As long as we can see the process of deflation continues, prices move towards our medium-term symmetrical 2% target, then there is a rationale for further interest rate cuts." Although there has been a recent rebound in data, Rehn stressed that attention should be paid to the overall situation and not just to the details.
Regarding the economy, Rehn believes that Europe "will gradually recover this year" and that "economic growth in next year and the year after will be further strengthened." However, he also warned against imposing a heavy burden on households and businesses.
Rehn said that the European Central Bank's interest rates are clearly still in a restrictive range, and its goal is to ensure that the process of deflation continues. "We also have a responsibility to support full employment, sustainable development and balanced growth without compromising our primary objectives."
The initial value of the euro zone composite PMI announced last week fell from 52.2 to 50.8, the lowest level in three months. Analysis believes that, following French President Macron's unexpected announcement of early elections, the second largest economy in the region is facing the prospect of complete government change.
Rehn said, "After the announcement, we saw an increase in the spread between French bonds and German bonds, but the market quickly stabilized." He also mentioned that there is currently no chaotic market dynamics and that the use of TPI (conduction protection mechanism) and other anti-financial fragmentation tools has not yet been considered.
"As long as major political participants can act rationally, we will not fall into a chaotic situation. Currently, discussion on TPI is not hot." Rehn also denied the possibility of a "European debt crisis." "I don't think that will happen. Although the central bank governor must be concerned, this concern must be moderate."