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 the Finnish daily newspaper Helsingin Sanomat.
During an interview published on Saturday, November 15, Rehn highlighted that reduced energy prices, lowered wage and service inflation, and a stronger euro could result in overall inflation dropping significantly compared to the ECB’s 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 acknowledged that there are risks of escalating inflation to consider. With inflation near the ECB’s 2% goal, investors and economists do not expect sudden changes to the deposit rate. Notably, the deposit rate has decreased approximately eight times during this cycle, from 4% to 2%.
Rehn also warned that the stock markets are clearly in danger of a crash. Despite US President Donald Trump’s tariff policies interfering with global trade, the euro area economy has demonstrated impressive performance. Speaking to Helsingin Sanomat, Rehn described the growth in the single-currency region as slow but steady.
As Governor of the International Monetary Fund for Finland, Rehn emphasized the importance of banks maintaining strong capital buffers. He noted that stock prices are elevated largely due to the rise of artificial intelligence (AI) in the US, although actual economic growth and firm profits are not surging at the same pace. Therefore, according to Rehn, caution is warranted in this scenario.
Meanwhile, sources mention that Rehn is running for the position of vice president of the ECB, with support from Finnish Finance Minister Riikka Purra. However, it remains unconfirmed whether Martins Kazaks will become the next central bank governor.
### Eurozone’s Uneven Growth Raises Concerns for the ECB
Analysts have recently discovered that the eurozone’s economic expansion is masking a significant gap, with almost half of the region experiencing either no growth or contraction. This has raised concerns for the European Central Bank as it weighs whether further rate cuts are necessary.
Reports released on Friday, November 14, showed that output rose by 0.2% in the third quarter compared to the previous three months, sparking optimism among investors that the recovery was gaining momentum. However, analysis revealed that nations accounting for 49% of the eurozone’s overall economic output did not experience any growth during this period. Notably, both Germany — the largest economy in Europe — and Italy encountered no progress.
Sources indicate that the ECB is aware of this issue. Earlier this month, ECB Vice President Luis de Guindos pointed out that officials should take note of the differing growth rates across member states. During their September meeting, bank officials expressed concern that Spain’s strong economic performance was primarily due to a rapid expansion rate, while other nations were struggling.
Although the ECB has already reduced borrowing costs eight times, this uneven growth dynamic may not be sufficient alone to prompt further rate cuts. However, it remains a consideration, especially as policymakers begin to assess other risks to inflation, such as a possible delay in the European Union’s carbon pricing plan.
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