FRANKFURT (Reuters) – The European Central Bank could decide that periods when inflation is too low need to be compensated by times of faster price growth, and vice versa, under its ongoing strategic review, ECB President Christine Lagarde said on Wednesday.
“If credible, such a strategy can strengthen the capacity of monetary policy to stabilise the economy when faced with the lower bound,” Lagarde told an event.
“While make-up strategies may be less successful when people are not perfectly rational in their decisions – which is probably a good approximation of the reality we face – the usefulness of such an approach could be examined.”
She added that a persistent failure to meet the inflation target can feed into inflation expectations and would call for a shorter policy horizon.
(Reporting By Francesco Canepa; Editing by Balazs Koranyi)
