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European Central Bank Chief Economist Philip Lane said on Wednesday that the central bank stands ready to take whatever action is needed to fulfill its responsibilities to ensure that price stability and financial stability in the euro area is maintained, reported Reuters.
Key Quotes:
“The medium-term orientation allows for inevitable short-term deviations of inflation from the target, as well as lags and uncertainty in the transmission of monetary policy to the economy and to inflation”.
“The flexibility of the medium-term orientation takes into account that the appropriate monetary policy response to a deviation of inflation from the target is context-specific and depends on the origin, magnitude and persistence of the deviation”.
“Today’s Eurostat inflation release will be incorporated in the projections that will be considered at next week’s monetary policy meeting”.
“The governing council will continue to respond flexibly to new challenges as these arise and consider, as needed, new policy instruments”.
“It is essential to avoid that a spell of temporarily-high inflation pressures – even if arising from a supply shock – becomes entrenched”.
“Downward nominal rigidities in wages and prices means that surprises in relative price movements should mainly be accommodated by tolerating a temporary increase in the inflation rate”.
“In the event of an adverse supply shock, the horizon over which inflation returns to the target level could be lengthened in order to avoid pronounced falls in economic activity and employment”.
“Especially difficult to interpret standard indicators of underlying inflation”.
“So long as longer-term inflation expectations are anchored at the target level, inflation will be at the target level if economic activity and employment are at their potential levels”.
“Tightening policy in response to temporarily-high inflation would be counterproductive”.
“Excessive delay in monetary tightening runs the risk of a sharper subsequent hike in interest rates and a greater loss in output”.
“If current inflation is above the target level but the forecasts show it falling below target over the projection horizon, tightening would be counterproductive”.
