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ECB's inflation objective should be symmetrical: Liikanen
September 28, 2017 / 8:08 AM / in 23 days

ECB's inflation objective should be symmetrical: Liikanen

HELSINKI (Reuters) - The European Central Bank should fight high and low inflation with equal vigor, Finnish central bank chief Erkki Liikanen said on Thursday, suggesting he had little tolerance for any eventual inflation overshoot.

FILE PHOTO: Erkki Liikanen speaks during a press briefing in Helsinki, Finland March 15, 2012. REUTERS/Lehtikuva/Antti Aimo-Koivisto

Liikanen’s comments are in contrast with arguments from some policy doves who say that after a lengthy period of low inflation, the ECB could accept a modest target overshoot as it should take a longer view and make up for ‘lost’ inflation.

Indeed, the ECB has undershot its almost 2 percent inflation objective for nearly five years and will continue to miss at least until the end of the decade, its September staff projections show.

“The ECB’s policy target is symmetrical,” Liikanen, who sits on the ECB’s rate setting Governing Council, said in prepared remarks for a news conference. “It is of equal importance to act effectively on inflation levels that are above or below the price stability objective.”

Rate-setters will decide this autumn, likely in October, whether to curb stimulus from next year with policy hawks, such as Germany, calling for a relatively quick end to asset purchases even as doves make the case for only incremental withdrawal of support.

Liikanen said that given steady euro zone growth and a favorable outlook, inflation will slowly return the ECB’s target, even if price growth has so far been unsatisfactory.

“A very substantial degree of monetary accommodation is still needed in the euro area for underlying inflationary pressures to gradually build up,” Liikanen said, echoing ECB President Mario Draghi’s policy statement following the September rate meeting.

Singling out China among top risks, Liikanen said that a bigger slowdown could have global repercussions.

“The global weight of the advanced economies has decreased,” Liikanen said. “A stronger-than-forecast deceleration in China’s debt-driven growth would weaken confidence globally and significantly dampen growth.”

Reporting by Jussi Rosendahl; Writing by Balazs Koranyi; Editing by Toby Chopra

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