ECB is currently reviewing monetary policy strategy – also focus on inflation target
The President of the Deutsche Bundesbank, Jens Weidmann, has spoken out in favor of maintaining the medium-term orientation of the ECB's inflation target. This helps to anchor the inflation expectations, which are central to monetary policy, said Weidmann on Thursday in a statement on the closed session of the CSU regional group in the Bundestag according to the speech.
“By emphasizing the medium-term of our policy goal, we recognize that monetary policy stimuli do not have an immediate effect on inflation, but take time.” The medium term also allows risks to price stability to be included, which may only materialize with a considerable delay.
The European Central Bank (ECB) is currently reviewing its monetary policy strategy. The focus is on its medium-term target of an inflation rate of “below, but close to two percent”, which it has failed to achieve for years. Most recently, the inflation rate in the euro area was even negative. The last strategy review at the ECB took place in 2003.
Many experts consider the ECB's current inflation target to be difficult to understand. According to Weidmann, for example, two percent could be understood as an upper limit. This could lead to the interpretation that monetary policy would tolerate downward deviations from the target rather than upward deviations, he added. “In my opinion, an explicitly symmetrical formulation of our policy objective would be clearer and easier to understand than the current wording”.
