HELSINKI (Reuters) – The European Central Bank should maintain a tightening monetary policy that restricts demand, Finnish central bank Governor Olli Rehn said in a speech on Friday.
“In monetary policy, we have moved into an area that restricts aggregate demand, and there is no reason for us to abandon it or exit it prematurely,” Rehn said.
He warned, however, against a return to economic “shock therapy” seen in the early 1980s of sharply higher rates, arguing instead that inflation can be brought down by less strict means.
“The path to sustainable growth is narrow, but it can be traversed with a proactive, balanced policy,” Rehn said.
“In this way, we can achieve our goals without causing unnecessary costs to the economy – also because now the central banks are independent and not subject to political pressure, as in the 1970s.”
(Reporting by Anne Kauranen, editing by Terje Solsvik)
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