Background and Context
- Geopolitical Uncertainties: Trade conflicts (including US tariff policy) and global tensions are weighing on economic growth and could dampen inflationary effects, a factor that ECB President Christine Lagarde also highlighted.
- Flexibility as a Priority: Rehn argues that sticking rigidly to previous plans in light of volatile conditions is risky. Instead, he advocates for data-dependent management without rigid guidelines for the extent of further interest rate steps.
Possible Scenarios for Investors
- Interest Rate Development: An “XL interest rate cut” (as speculated by analysts beforehand) could temporarily push the deposit rate below 2%, which would particularly affect savers with overnight or fixed-term deposits.
- Stock Markets: Lower refinancing costs are likely to support corporate profits – particularly interest-sensitive sectors like real estate or technology could benefit. At the same time, the risk of overheating in certain areas increases.
- Bond Yields: Further cuts are expected to lead to a continued decline in the yields of European government bonds, making the search for returns more challenging (“TINA effect”).
Strategic Recommendations
- Diversification: Inflation-protected investments (e.g., REITs or commodities) are gaining importance if monetary policy remains expansively for a longer time.
- Interest Rate Risk Management: For borrowers, variable loans currently offer advantages; fixed-rate loans could become more expensive relative to the market level if interest rates continue to fall.
Rehn’s statements signal a phase of increased monetary policy flexibility – investors should prepare for continued volatility and regularly adjust their portfolios to changing risk parameters.