FRANKFURT (Reuters) – The euro zone’s economic slowdown is no longer temporary, and the European Central Bank needs to provide more stimulus if it aims to fulfill its mandate, Governing Council member Olli Rehn told German newspaper Boersen Zeitung.
The euro zone economy has slowed for much of the past year and a long-expected rebound has failed to materialize, suggesting that the ECB needs to prepare for a stronger and prolonged slowdown, Rehn, Finland’s central bank chief, told the paper in an interview.
“If we really want to live up to our mandate, further monetary stimulus is now needed until there is improvement in economic and inflation prospects,” Rehn said.
“We should no longer see the recent slowdown in growth as a brief temporary dip in the economy, as a ‘soft patch’, Rehn added. “We are experiencing a longer phase of weaker growth.”
ECB President Mario Draghi has already opened the debate about further stimulus, arguing last month that the ECB will need to act in the absence of improvement.
Rehn said that policy action could include a combination of a rate cut, revised interest rate guidance, or the resumption of bond purchases, a list that echoes Draghi’s earlier comments.
But Rehn did not express a preference, saying that the Governing Council will decide at one of its upcoming meetings.
When asked if the ECB could cut its 0% main rate, Rehn said that current thinking involved a cut in the minus 0.4% deposit rate.
“What is also of great concern to us now are inflation expectations,” Rehn said. “Market-based inflation expectations have fallen sharply and remain far too low.”
The ECB next meets on July 25, then on Sept. 12. Policymakers and analysts are split on the timing of the bank’s next move, seeing merit in action at either of those meetings.
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