- Our next policy move is not automatically an interest rate hike
- Future decisions are to be made on a meeting-by-meeting basis
- Inflation risks are now slightly tilted to the downside
- But not in favour of pre-emptive or “insurance” rate cuts at this stage
- Outlook for growth and inflation in the euro area remains highly uncertain
- That due to the trade war that has just begun as well as geopolitical tensions
- Geopolitics now directly drives inflation, growth and market volatility
The key thing that all central banks want is always flexibility. And that is what Rehn is trying to condition markets into thinking that the ECB has. The ECB has managed things well enough to keep on the sidelines while not causing an upset in market expectations.
However, the question is can they keep that up for much longer going into 2026? That especially since there continues to be stagflation risks creeping into the region’s largest economy i.e. Germany. It’s going to be a tough balancing act if other economies also follow a similar trend in due time
ECB policymaker Rehn tries to keep the door open for rate cuts
