ECB May Cut Rates Again

NEW YORK (Reuters) – The European Central Bank may need to cut interest rates again in September due to ongoing economic weaknesses, according to Finnish central bank chief Olli Rehn.

The ECB was one of the first major central banks globally to reduce interest rates in June, partially reversing a series of unprecedented rate hikes, but kept rates steady in July without providing clear signals ahead of the upcoming meeting on September 12.

With increasing data regarding prices and the economy’s health, Rehn has emerged as one of the first members of the ECB’s 26-member Governing Council to express his views on the appropriate strategy going forward.

Rehn stated, “The recent increase in negative growth risks in the euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September, provided that disinflation is indeed on track,” during a speech at the European American Chamber of Commerce in New York.

Markets anticipate a 90% chance of a 25 basis points cut in the deposit rate to 3.5% in September, with expectations of at least another move before the year concludes.

Rehn expressed that the previously anticipated economic recovery in the euro zone should not be taken for granted, indicating that policymakers must prepare for varying outcomes.

He remarked, “The bad news relates to the growth outlook: there are no clear signs of a pick-up in the manufacturing sector. We must also consider that the slowdown in industrial production may not be as temporary as assumed.”

While he expressed a more positive outlook on inflation, he cautioned that achieving the ECB’s 2% target for price growth may not be straightforward. “The road ahead to the ECB’s 2% medium-term goal is still likely to be bumpy this year,” Rehn added.

Despite the existing risks to price growth, Rehn emphasized that the ECB has made significant progress.