ECB’s Makhlouf: ‘Transitory … Is Even Less Than the Word Temporary’

14 July 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Wednesday played down the meaning of the word ‘transitory’ in the ECB’s new monetary policy strategy.

In an interview with Politico, Makhlouf, who heads the Central Bank of Ireland, said, ‘We're not doing what the Fed is doing. We are not doing average inflation targeting. We're not doing makeup strategies.’

‘What we are recognizing is, especially when you're operating at the lower bound, that the sort of action you may take may lead to transitory overshooting’, he continued. ‘We use the word transitory, which is even less than the word temporary. It's almost incidental.’

According to the new framework of the ECB’s monetary policy, the ‘especially forceful or persistent’ measures required near the lower bound ‘may also imply a transitory period in which inflation is moderately above target.’

Makhlouf suggested that he ‘would not be comfortable’ with too-precise forward guidance regarding the duration of the asset purchase programme, which is currently expected simply, as the ECB states, ‘to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before [the Governing Council] starts raising the key ECB interest rates.

‘I'm not sure that limiting ourselves to a specific timescale is helpful’, he said. ‘I think we need to have flexibility. And certainly, in the world we are living in, the more flexibility we are going to have the better.’

Makhlouf acknowledged differences of opinion on the Governing Council: ‘All of us have views and some of us have different views’, he said.