ECB’s Rehn warns governments to count on higher rates

September 16, 2021

HELSINKI (Reuters) – Finland’s central bank raised its 2021 growth estimate on Thursday and warned that even if a rate hike is still far into the future, governments should prepare for the eventual rise in borrowing costs.

Thanks to growing vaccination rates and supportive economic policy, the central bank sees Finland’s gross domestic product growing by 3.5% in 2021, up from the 2.9% projected in June, while the 2022 estimate was lowered to 2.8% from 3%.

However the bank added that high debt ratios in euro area countries weaken the sustainability of the bloc’s expansion.

“Even though a rise in interest rates is not yet within sight, it will nevertheless one day take place,” Finnish central bank chief Olli Rehn said. “This should be taken into account in budgetary planning in all the euro area countries.”

The central bank raised its inflation estimate for 2021 to 1.5% from 1.4% and maintained its 2022 forecast at 1.6%.

(Reporting by Essi Lehto; Editing by Balazs Koranyi)