Olli Rehn, Governor of the Bank of Finland and a member of the ECB Governing Council, wants the European Central Bank to keep its options open. In a Reuters interview on May 21, Rehn argued that committing to a predetermined interest rate path would be a mistake, particularly as geopolitical uncertainty, specifically the US-Iran conflict, continues to inject volatility into energy markets and, by extension, inflation readings across the euro area.
The timing matters. The ECB’s next rate decision lands on June 11, and markets are already pricing in a potential hike from the current 2% deposit facility rate toward a range of 2.5% to 2.75%. Rehn’s message to those markets: don’t assume anything.
Inflation is elevated, but Rehn sees a ceiling
Euro-area inflation has recently pushed above the ECB’s 2% target, driven largely by oil price spikes linked to the Iran conflict. His argument rests on two pillars. First, medium-to-long-term inflation expectations in the euro area remain broadly anchored at 2%. Second, Rehn sees limited evidence of the dreaded second-round effects, specifically wage-price spirals where workers demand higher pay to keep up with rising costs, which then forces companies to raise prices further, which then forces workers to demand even higher pay.
