ECB policymaker Olli Rehn has indicated that risks to the inflation outlook within the euro area are two-sided. He mentioned that the eurozone’s economic growth is gradually improving.
This statement raises uncertainties regarding potential policy changes in April. The expectation is that the focus will remain on the ongoing progress of disinflation rather than shifting strategies.
Balanced Inflation Pressures
Rehn’s comments suggest that policymakers see inflation pressures as balanced in both directions rather than skewed towards a single outcome. This implies that they are not solely concerned about prices rising too quickly, but also aware of the possibility that inflation could slow more than anticipated. At the same time, he acknowledged that the broader economy is showing signs of better performance, implying that past concerns about weaker conditions may be easing.
With this in mind, market participants watching for policy adjustments at the next meeting may find themselves facing uncertainty. Instead of a strong indication that borrowing costs will be lowered soon, the focus appears to be on tracking current trends more closely. The direction of price growth remains at the forefront, with the expectation that efforts to bring inflation under control will continue for now without major deviation.
Given the balance at play, this suggests upcoming discussions may centre around waiting for further data before making a move. If inflation remains on a steady downward path, the likelihood of adjustments could increase. However, if price pressures prove more persistent than expected, policymakers may hesitate before shifting to a more supportive stance.
Outlook On Interest Rates
In the short term, those following interest rate expectations should be mindful that officials are not rushing towards any decision. While the gradual recovery in activity might support arguments for a change in approach later in the year, current messaging indicates that confidence in the disinflation process will need to grow further before action is taken. Signs of economic improvement, combined with the balanced view on inflation risks, mean that upcoming signals from policymakers will be closely monitored for any shift in emphasis.
