MNI POLICY: Rehn Calls For Review Of ECB's Monetary Policy

By Luke Heighton

     FRANKFURT (MNI) - The European Central Bank's monetary policy should be

"systematically" reviewed, Bank of Finland chief Oli Rehn said Friday,

expressing concern that trust in central banks' ability to influence inflation

rates has been "eroded."

     Rehn, who is regarded as a possible successor to ECB president Mario

Draghi, said a review would help increase the effectiveness and credibility of

monetary policy.

     Here are key points from his speech in Helsinki:

     --The impact of the financial and debt crises, an ageing population and

generally lower interest rates, the "past years' experiences from non-standard

monetary policy measures, as well as accumulated research evidence challenge

central banks to review their monetary policy strategy", Rehn said.

     --The most recent update of the ECB's monetary policy strategy took place

in 2003. With monetary policy strategies "currently being discussed across the

world more vividly than for a long time [...[ the Eurosystem, too, should

consider performing a new systematic review of its monetary policy strategy."

     --Inflation expectations have decreased in the euro area in recent years,

deviating from the ECB's definition of price stability (an inflation rate below,

but close to, 2% over the medium term), Rehn said. "One explanation for this is

that, for the reasons mentioned above, trust in central banks' ability to

influence the inflation rate may have eroded."

     --Such a review "would not mean questioning the primary objective of price

stability, but it would indeed entail a comprehensive review of the guiding

principles, key assumptions and tools used for the implementation of monetary

policy," Rehn said. If the strategy reassessment were to lead to enhancements

that would increase the effectiveness and credibility of monetary policy, it

would have fulfilled its purpose."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$]