Euro zone Monetary policy

ECB remains focus on forward guidance and concerns euro valuation

“The spectacle of American central bankers’ trying to press the inflation rate higher in the aftermath of the 2008 crisis is virtually without precedent”, Alan Greenspan wrote in his recent book The Map And The Territory. As a matter of fact, all the major central banks in the developed countries, from the U. S. Fed, to the Bank of Canada, the Bank of Japan, the BOE and the ECB, have made their priority to pump inflation up since the 2008 financial crisis.

Amid the saturation of conventional monetary policy tools, four of the central banks have adopted forward guidance – essentially promised to maintain accommodative monetary policies for long enough, adding a time dimension to their policy tool space. Last Thursday the ECB firmly reiterated its forward guidance to keep key interest rates at present or lower levels for an extended period of time. The intention to maintain an accommodative policy stance is based on an overall subdued outlook for inflation extending into the medium term.

The ECB also expressed concerns over the valuation of the euro and its significant contribution to the lower inflation. “The strengthening of the effective euro exchange over the past one and a half years has certainly had a significant impact on our low rate of inflation”. The forward guidance shall at least damp further strength of the euro by keeping the long term interest low in the euro zone.

Leave a Reply

Your email address will not be published. Required fields are marked *