The statement by Olli Rehn, a member of the Executive Board of the European Central Bank (ECB), that interest rate cuts are possible if the inflation rate falls below the target, provides insight into the current monetary policy strategy of the ECB.
Current Inflation Situation and ECB Target
In March 2025, the inflation rate in the Eurozone stood at 2.2%, slightly above the ECB’s target of 2%. The ECB aims to stabilize the inflation rate at 2% in the medium term. If inflation falls below this level, further interest rate cuts could be considered.
Possible Interest Rate Cuts
The ECB last cut the deposit rate by 0.25 percentage points to 2.25% in April 2025. Further rate cuts, possibly by 0.50 percentage points, are being discussed depending on the medium-term inflation outlook.
Impact on Financial Markets and Economy
The current economic uncertainty, caused by trade conflicts and tariffs, influences the ECB’s strategy. While interest rate cuts affect the bond markets and their yields, the stock markets and the Euro have so far shown little movement. However, signs of economic growth in the Eurozone, particularly through stabilization in the industry sector, have a positive effect.
Strategic Considerations
The ECB’s decisions depend heavily on current data and change from meeting to meeting. A stronger Euro could dampen inflation and thus reduce the need for further interest rate cuts.