Rehn of the Bank of Finland

Finnish Bank’s CEO Olli Rehn It considers it possible that the European Central Bank (ECB) will have to cut its rates more than the financial markets are now waiting.

“If the euro area’s economic outlook is weakened and inflation slows down more than predicted President of the United States Donald Trump Because of the customs, it is not necessary to rule out the possibility that interest rates will have to be reduced more than current expectations on the market, ”says Rehn, CEO.

The Director General of the Bank of Finland is a member of the Council on the ECB’s monetary policy on behalf of his office.

Financial market predicting the Central Bank’s cutting interest rate three times in the spring, 0.25 percentage points in the spring. This would mean that the ECB would lower the rating rate to 2.00 % in early June. Currently, the control interest rate is 2.75 %.

Reduction of monetary policy promotes economic growth, as interest cuts are likely to increase household consumption and business investment.

Recently, several economists have anticipated interest cuts based on the real interest rate on the euro area. It means interest, which results in balance and investment in balance. That is, a space where the maximum economic capacity of the economy is in use without accelerating inflation.

“Real balance interest is a good analytical tool to think about monetary policy, but it is not a tool for practical decision -making. Monetary policy must also take into account, if the economic outlook is clearly deteriorated, this would naturally also slow down inflation. ”

The ECB strongly believes that inflation will soon slow down its two percent targets. According to current forecasts, the slowdown in inflation would support the end of interest cuts at the beginning of the summer.

As a problem However, there is an uncertainty about the economic growth in the euro area, increased by President Trump’s aggressive trade policy. At the center of it are imported duties that the President seeks to protect the production of his home country from foreign competition.

Customs will inevitably cause disruption to world trade, which would slow down economic growth. In addition, there is a risk that Chinese companies will start selling their product to Europe at dumping.

President Trump has already imposed 10 % extra duties for Chinese products. In addition, he has announced that he will determine the duties from the European Union to products imported to the United States, but has not yet fulfilled his threat.

“The slowdown in the economic growth of the euro area due to the trade war is a significant danger. The trade war between the Allies would be the last thing to need when Russia is undergoing a brutal offensive war in Ukraine. ”

Director general However, Rehn emphasizes that the EU negotiating position with the United States is not weak.

“We have an internal market for 450 million consumers and a common trade policy. Europe must remain common and trust in itself and not submit to intimidation. ”

Due to Russian aggression, Europe will also buy more energy and weapons in the United States. In other words, Europe’s weight as a US trading partner is greater than before.

However, in the United States, the economy is in a better stroke in the United States than in the euro area. The International Monetary Fund (IMF) predicts that the US economy will increase by 2.7 per cent this year and the euro area economy is 1.0 per cent.

According to the Bank of Finland’s forecast, President Trump’s duties can weaken the domestic economic growth by 0.5 percentage points this year. This would mean that, in the worst case, the Finnish economy would increase by 0.8 % instead of 0.8 % this year.

Uncertainty The slowdown in the euro area inflation to 2 % has increased rapidly rising service prices.

Service inflation has been around 4 % for more than a year, which is partly due to relatively high salary increases. In January inflation accelerated In the euro area, speeded up by services to 2.5 %.

“The latest information and anticipating indicators indicate that wage pressures in the euro area and the slowdown of inflation per percent. This is also good for Finnish households, whose real purchasing power grows as inflation slows down. ”

In Finland Salary negotiations have gone in the early part of the year badly. The employee side has claimed a total of 10 % salary increases in two years. The employer side is ready for significantly smaller increases.

Wage earners justify their requirements by significant strengthening of household purchasing power. According to employers, high wage increases would weaken the cost competitiveness of companies.

Rehn, CEO Rehn, comments very carefully about the pay dispute.

“There is nothing new to say. It would be in the interest of everyone to find a solution that will ensure without delays, both the real purchasing power of households and the competitiveness of companies in international trade. ”