ECB: Rehn – Better To Avoid Forward Guidance

Bank of Finland’s Rehn has given a speech that broadly echoed comments from his appearance at the Finnish parliament last week. That includes seeing a reason to continue rate cuts in December if data and new economic projections confirm the current outlook, and that the ECB will be moving towards a neutral level between Jan-June. 

• “The pace and scale of future rate cuts will depend on the ECB Governing Council’s comprehensive assessment of three key factors: the headline inflation rate, the dynamics of underlying inflation, and the effectiveness of monetary policy transmission.”
• On forward guidance: “In my view, forward guidance should remain part of our toolbox, and it works best when we need to address the well-known problems of the effective/zero lower bound and excessively low inflation. But in the prevailing conditions of high uncertainty and imperfect information, it is better to avoid such forward guidance that ties policymakers’ hands.”
• “That said, as we are gradually moving from the backward-looking into forward-looking approach, as Philip Lane explained in the FT this morning, directional guidance makes sense – as long as we remember to emphasise that decision-making is indeed dependent on economic and financial data and on the analysis of the growth and inflation dynamics and the long-term trends in them.”
• Full remarks here.