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ECB official says September stimulus should 'overshoot' market expectations

The European Central Bank should roll out a "significant and impactful" package of stimulus measures that surpasses market expectations to combat a slowdown in economic growth, a member of the bank's rate-setting committee suggested.

ECB Governing Council member Olli Rehn said the stimulus package to be announced at the Sept. 12 meeting should include cuts to the key interest rate and "substantial and sufficient" bond purchases. Terms of new long-term loans for banks could also be sweetened, the policymaker added.

"When you're working with financial markets, it's often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker," Rehn told The Wall Street Journal in an interview.

In July, the ECB signaled that a stimulus package was on the way as it tasked committees to examine policy options, including bond purchases under a new quantitative easing program. The central bank also altered its guidance to say interest rates are expected to stay "at their present or lower levels," at least through the first half of 2020.

The ECB intends to take further monetary policy action in September amid a weakening economic outlook for Europe, Rehn said. The Suomen Pankki governor said a package of measures "has a stronger impact than sequencing various measures over time."

Rehn's comments came a day after Germany reported that its economy contracted by 0.1% in the second quarter due to weaker foreign trade. Growth in the wider eurozone slowed to 0.2% in the second quarter from a 0.4% expansion in the first quarter.