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By Luke Heighton
     FRANKFURT (MNI) - The European Central bank has the mandate and the
flexibility to exceed self-imposed issuer limits on sovereign bond purchases
under its asset purchase programme, Central Bank of Finland governor Olli Rehn
said in an interview published today.
     "I took another very close look at this," he said. "The ECJ and the Federal
Constitutional Court have clearly underlined the independence and flexibility of
the ECB within its mandate. At the same time, they stressed that all measures
must be proportionate and necessary."
     Rehn also described Christine Lagarde's "broad and deep policy experience
and proven leadership in the IMF" as "big assets for the Eurosystem."
     Here are the key points from his interview with Borsen-Zeitung:
     - The recent slowdown in euro area growth can no longer be seen as a
temporary dip or a "soft patch," Rehn said. 
     The recent weakness of German industry "is also mostly a consequence of the
trade conflicts and thus a cause for concern for the euro area as a whole." 
     "My philosophy is always that it is better to prepare for the worst than to
simply hope for the best," he added.
     - "Market-based inflation expectations remain too low, and that is a cause
for concern," Rehn said. 
     He said that that is why it is particularly important that "we are very
clear both in our policy-making and in our communication."
     - Rehn would not be drawn on the outcome of the ECB Governing Council's
July meeting, but said that EC head Mario Draghi has been "very clear recently:
We are always ready and determined to act if necessary and to adapt or use all
our instruments." 
     "We have a number of instruments which are very effective and which, as a
package, have even greater effects than isolated, " he added.
     - Asked whether interest rate cuts are the "first line of defence", Rehn
replied: "We have parallel defence lines. Some are deeper than others. We will
analyse what the best options are and we will end up doing this very collegially
in the Governing Council. At the next meetings we will take the necessary
decisions to achieve our medium-term price stability objective."
     - Rehn said the Governing Council had "clearly indicated that we will
consider measures to mitigate the possible negative side effects of negative
interest rates in the event that we continue to cut interest rates or hold on to
very low rates for much longer. We are currently analysing this very carefully."
     - Asked whether the ECB would consider buying bank bonds, shares or ETFs,
Rehn replied: "I always think it makes sense to think outside the box. That
doesn't mean that it always leads to different decisions. But it often helps to
think creatively and not to limit yourself too much."
     - Rehn said he had "no concrete result in mind," for any future ECB
strategy review. "We should certainly maintain price stability as our key
objective. But we could discuss our definition of price stability. Strategies
such as those the Fed is now debating are certainly worth discussing." 
     He also restated and supported Draghi's assertion last month that the ECB
applies a symmetric approach to reaching its medium-term inflation objective.
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$X$$$,M$$EC$]