Stournaras Says New Policy Leaves ECB More Prepared for Crises

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The European Central Bank’s revised strategy allowing more flexibility in dealing with inflation will leave it better prepared for future crises, governing council member Yannis Stournaras said in an opinion column in Greece’s Kathimerini newspaper.

“I express the belief that we are better prepared to face any future economic turmoil,” Stournaras wrote.

Central banks in the euro region will be able to react more directly and effectively to economic developments and to maintain favorable financial conditions and stable prices, he said.

After an 18-month policy review, the ECB said Thursday it will now seek consumer-price growth of 2% over the medium term, rather than the previous formulation of “below, but close to, 2%.”

The bank also said that when interest rates are languishing at low levels, as they are now, the economy will need “especially forceful” monetary stimulus that could lead inflation to briefly exceed the target.

Stournaras fully backs the change. Some monetary officials felt the previous target was too vague and led to calls for tighter policy too soon.

“Compared to the current wording, this approach makes it clear that 2% is not the maximum level that is considered acceptable for inflation, but our symmetrical target,” Stournaras said. In addition, “we emphasize that both the continuous rise and the prolonged fall of prices must be limited as much as possible.”

When rates are low, the central bank should continue with intensive monetary easing measures -- like its securities-purchase program, targeted long-term bank-refinancing operations and the signaling of the direction of monetary policy -- to prevent inflation from remaining below the target, the Bank of Greece governor said.

“This way, inflation may reach levels just above the 2% target for a limited period of time,” he added.

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