WASHINGTON (Reuters) – Inflation across the euro zone is well on its way back to the 2% target but sluggish economic growth creates a risk that price growth goes lower, Finnish central bank chief Olli Rehn said on Tuesday.
The ECB last week said that price pressures may be lower than it had predicted earlier and market economists argue that inflation is already at or near target, even as interest rates remain high enough to constrain the economy.
“Disinflation in the euro area is well on track,” Rehn said in a lecture at the Peterson Institute in Washington. “The growth outlook has weakened quite clearly in the past few months, which could also increase disinflationary pressures.”
He argued that interest rates are still coming but would not be drawn on how quickly and how far the 3.25% deposit rate needs to fall.
“As our rates still are at the restrictive territory, the direction of rate changes is clear,” Rehn said.
The speed and scope of rate cuts will depend the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, Rehn said.
(Reporting by Balazs Koranyi; Editing by Chizu Nomiyama)
