ECB Considers Steeper Rate Cuts Amid Economic Uncertainty

The European Central Bank (ECB) is considering further interest rate cuts, with the possibility of a larger reduction, as inflation projections may fall below the 2% target. Governing Council member Olli Rehn emphasized the need for careful assessment, given the current economic uncertainty and tightened financing conditions.

The European Central Bank might have to reduce interest rates more significantly, according to Governing Council member Olli Rehn in an interview with Bloomberg News. Should June's inflation projections dip below the targeted 2% over the medium term, a further rate cut would be the appropriate response, he stated in Washington.

Rehn highlighted the recent tightening of financing conditions and the realization of risks to economic growth, underscoring the ECB's necessity for a comprehensive assessment of the situation to inform their decision on rates. The Finnish central bank governor noted the pervasive uncertainty requiring meetings to address issues as they arise.

The potential for an extraordinary 50-basis point rate cut is contingent on the medium-term inflation outlook and whether economic growth prospects change for better or worse. Following a 25-basis point cut last week, making it the seventh in a year bringing rates to 2.25%, the ECB acknowledged that disinflation is progressing but warned that price growth might be weaker than expected. Insiders revealed to Reuters that, absent a significant easing of trade tensions, a June rate cut remains likely.

(With inputs from agencies.)