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ECB Expected to Ease Monetary Policy by Mid-Summer: Reuters

ECB policymaker Olli Rehn said Tuesday the bank is expected to continue easing monetary policy, likely ending restrictions by mid-summer, Reuters reports.

Speaking at a conference in Hong Kong, Rehn noted the ECB has already cut interest rates four times this year to 3%. Markets anticipate further cuts as inflation subsides and weak growth grips the eurozone.

"In light of the current economic outlook and our reaction functions, I would assume that our monetary policy will leave restrictive territory in the coming months, at the latest by midsummer," Rehn stated.

Rehn previously estimated the neutral interest rate, which neither stimulates nor restricts the economy, to be between 0.2% and 0.8% in real terms. Given the ECB's 2% inflation target, this would equate to a 2.2% to 2.8% range for the deposit rate. Markets anticipate the central bank reaching the bottom of this range by June, and potentially falling below it by year-end.

However, Rehn acknowledged that uncertainty remains, particularly regarding the potential impact of the incoming US administration's trade policies under President Biden. These policies could potentially increase the cost of doing business.

Rehn expressed skepticism about the effectiveness of trade barriers, arguing that companies find ways to circumvent them. He pointed to the recent decline in direct trade between China and the US, suggesting that trade flows are being rerouted through intermediary countries like Mexico and Vietnam.

"Companies are nimble in moving production to avoid tariffs," Rehn stated. "This kind of adaptation makes economies more resilient, but at the same time, it does add to the costs of doing business."