July 17, 2018 / 3:22 PM / a year ago

ECB shouldn't tie its hands too early on policy - Rehn

HELSINKI, July 17 (Reuters) - The European Central Bank should not tie its hands too early when it comes to future monetary policy decisions, but look instead at how the economy pans out, Finland’s new central bank governor Olli Rehn told Reuters on Tuesday.

The ECB said last month it expects to end its 2.6 trillion euro ($3.0 trillion) bond-buying programme at the end of the year and to keep interest rates at their current, record low level “through the summer of 2019”, leading investors to price in a hike in October of next year.

Rehn, who succeeded Erkki Liikanen as the Bank of Finland governor last week, backed current market expectations but said any decision should depend on economic data in the intervening time.

“I think it’s indeed important to underline the data-dependent nature of decision-making,” he said in an interview.

“I recognise the importance of forward guidance, but on the other hand, it is wise in monetary policy not to tie one’s hands too early if there’s no need.”

Reuters reported last week that ECB policymakers were split over the timing of their first rate hike since 2011 and about the meaning of “through the summer”.

Some said an increase, which would mark a turning point after years of aggressive monetary stimulus, was possible as early as July 2019, but others ruled out a move until autumn, several sources said.

Rehn, who worked as the EU’s top economic official during the euro zone debt crisis, said markets were interpreting the guidance correctly as they price a rate hike for October next year.

“The ECB has shown by its actions that its communication is correct and credible ... The markets seem to be reading the forward guidance of the ECB correctly.” ($1 = 0.8557 euros) (Reporting by Jussi Rosendahl; Editing by Kevin Liffey)

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