ECB's Rehn: Further monetary policy stimulus is now needed

Author: Adam Button | Category: Central Banks

Explicitly dovish commentary from Rehn

Comments in Boersen Zeitung:
  • Stimulus is now needed until there is an improvement in economic and inflation prospects
  • Low inflation expectations are a 'great concern'; market based expectations are 'far too low'
  • Eurozone experiencing a longer phase of weaker growth, slowdown no longer temporary
  • ECB should prepare for stronger and prolonged slowdown, says better to prepare for the worst
  • ECB can change forward guidance, cut rates or resume QE if needed
  • Asked about cutting the main refi rate, says rate cut thinking involves deposit rate
  • There is a certain degree of flexibility with regard to QE limits
These comments are borderline alarmist. However Rehn has been speaking along these lines for a few weeks.

Here's a look at the turn from Rehn:
Oct 31:
April 26:
  • Says the big question now is 'whether the European economy is experiencing a short and temporary phase of slower growth or a longer phase'.
May 29:
  • Says central scenario is that Eurozone is seeing a soft patch but not a recession
  • Says first rise in interest rates is now further away than it was a few months ago but current policy appropriate
June 1:
  • Says central bank could strengthen forward guidance, cut rates, relaunch QE if needed
June 20:
  • Ready to act as appropriate unless there is improvement in economic conditions
Now (July 4) today he's saying it's time to act. So in five weeks we've gone from a soft patch and waiting longer to hike to rushing to cut now. Has it really gone that badly?

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