Rehn said the price of money is already doing some of the work

Olli Rehn, who governs the Bank of Finland and sits on the ECB’s Governing Council, spoke to a Finnish parliamentary committee on Tuesday. His main sentence was plain: “The recent rise in long-term interest rates is dampening growth and slowing inflation”¹.

He put the rise in borrowing costs down to inflation expectations, uncertainty and competition for capital, naming governments with large deficits and companies investing in artificial intelligence. “The increased demand for capital has driven up its price,” he said¹. Higher market rates are already feeding into bank lending rates for households and firms, he added¹.

The test. Rehn said future decisions will depend “on whether we see broader effects on inflation”, and that so far they have not appeared¹. He pointed to moderate, slowing wage growth and a labour market that is no longer tight, both unlike 2022¹. On the same morning, Germany’s producer prices excluding energy rose just 0.1% on the month³, which fits his description rather than contradicting it.

The caveat he chose. He also said a return to the “old normal” in energy markets “seems increasingly unlikely”¹. That is not a forecast of rates. It is a governor warning that the energy bill may stay high even if inflation outside it stays calm.

Elsewhere, the euro held at about $1.12 and the dollar index slipped 0.1%². Meeting by meeting, Rehn said, is “particularly justified” now¹. It is also the only honest way to run a committee when the oil price is set by missiles.