April 26, 2019 / 9:27 AM / 4 months ago

Investors may be doubting effectiveness of ECB policy - Rehn

HELSINKI (Reuters) - Investors may be doubting the effectiveness of the European Central Bank’s monetary policy measures in boosting inflation, ECB rate-setter Olli Rehn said on Friday.

FILE PHOTO: Finland's central bank governor Olli Rehn speaks during an interview in Helsinki, Finland July 17, 2018. REUTERS/Ints Kalnins

Rehn, seen as a potential successor to ECB President Mario Draghi, emphasised the need to continue providing stimulus to the economy and joined a growing number of policymakers in expressing scepticism about giving banks relief from a charge on their idle cash.

The Finnish central bank governor said stubbornly low inflation expectations may not only reflect years of low price growth but also investors’ misgivings about the ECB’s own policy.

“Firstly, long-lasting slow inflation may have lowered inflation expectations durably, and even so that they are easily moving downwards,” Rehn said as he presented his central bank’s annual report.

“Secondly, markets may find that monetary policy measures are not, under the current circumstances, effective enough to accelerate inflation.”

He also cited the perception that the ECB would sooner tolerate missing than exceeding its price growth target of just under 2 percent - an interpretation that Draghi himself was at pains to deny in his last news conference.

The ECB has said since March that it will keep interest rates at record lows at least until the end of this year, but Rehn said in an interview published on Friday that some policymakers would have preferred to extend that timeline even farther.

“Some of us were of the opinion that the low interest rate policy could have been pursued even a little longer,” Rehn told Finnish business daily Kauppalehti.

“In this situation of economic uncertainty and weaker growth, there are reasons to pursue a very stimulating monetary policy,” he added.

He added the ECB would be in a better position to assess the economic outlook and “make the necessary decisions” at its next meeting on June 5.

But the former European commissioner poured cold water on the option currently being studied by ECB staff of a tiered rate on deposits, which would give banks an exemption from paying a charge on part of their idle cash.

“I’m not very convinced of the effectiveness of this tool (a tiered interest rate) on the basis of current knowledge,” he told a news conference.

Reporting by Anne Kauranen; Writing by Francesco Canepa in Frankfurt; Editing by Alison Williams and Hugh Lawson

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