03 Feb 2022

Jan Krahnen: “A missed opportunity for the ECB”

SAFE Director sees the European Central Bank’s (ECB) latest monetary policy decision as a missed opportunity for forward guidance given the level of inflation and uncertainty about its duration

At its recent meeting, the ECB’s governing council took no monetary policy action at its, leaving both the volume of bond purchases and the key interest rate level untouched. Jan Krahnen, Director of the Leibniz Institute for Financial Research SAFE, comments as follows:

“In view of the current inflation and consumer price developments as well as the directional decisions already taken in the U.S. and the U.K., a landmark decision by the ECB is overdue – it is also currently being called for by most observers in rare agreement. However, such a statement on a change of course in the key interest rate and/or the bond purchase program failed to materialize today. This is astonishing because the ECB has lost the opportunity:

Namely, it could have transparently linked its current uncertainty about the interpretation of inflation developments as permanent or temporary to its policy objectives through some form of self-commitment. Moreover, the ECB could have announced that it would make a positive interest rate step binding over a certain period if inflation in the euro area remained consistently high. At the same time, markets would be empowered to dynamically price their expectations into the interest rate structure in the months ahead.”