By Tarmo Virki
(Reuters) – Finnish central bank governor Olli Rehn said on Monday that the European Central Bank’s Governing Council was determined to act if the medium-term inflation outlook continues to fall short of its target of below but close to 2%.
“Despite the stronger labour market and accelerating wages, inflationary pressures remain muted, and indicators of inflation expectations have declined with the weakening economic outlook,” Rehn, a Governing Council member, said in a speech published by the central bank.
“A significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favourable and to support euro area growth and domestic price pressures,” he said.
Rehn was somewhat more outspoken than his peer Madis Müller, Governor of the Estonian central bank, who said the low inflation could mean that the central bank has to further boost the economy at its mid-September meeting.
Rehn said the council was ready to adjust all its instruments, as appropriate, to make inflation converge towards its aim in a sustained manner.
“We are currently examining options, including ways to reinforce our forward guidance on policy rates, mitigating measures related to the negative deposit facility rate – such as the design of a tiered system for reserve remuneration – and options for the size and composition of potential new net asset purchases,” Rehn said.
(Reporting by Tarmo Virki in Tallinn; Editing by Hugh Lawson)