European Central Bank committee member Rehn: The pace of interest rate cuts is still uncertain, and rates may reach neutral levels in the first half of next year.

European Central Bank Governing Council member and Governor of the Bank of Finland, Olli Rehn, said on Tuesday that the European Central Bank will further cut interest rates, and the deposit rate may reach the so-called neutral level in the first half of next year. With inflation slowing down, the European Central Bank has already cut interest rates three times this year, and the market has fully priced in that the ECB will cut rates at each meeting until at least April next year. Rehn said at a conference in London, "The direction of interest rate changes is clear." "But the speed and extent of rate cuts will depend on our overall assessment of three factors at each meeting: inflation outlook, potential dynamics of inflation, and the strength of monetary policy transmission." He stated that cutting the deposit rate to 3.25% may bring it to the so-called neutral level. "Current market data and simple (or simplified) figures seem to suggest that we will exit the restrictive zone at some point during the spring or winter of 2025," Rehn said, "But this is just my observation, not a commitment." The issue with "neutral" is that it is an estimate, not an exact level, making it difficult to determine a target, especially when policymakers have almost no consensus on the specific position of this level. Rehn stated that the Bank of Finland's estimate for real interest rates, or inflation-adjusted rates, is between 0.2% and 0.8%, which means that if the inflation rate is 2%, the deposit rate will be between 2.2% and 2.8%.