ECB’s Makhlouf: Our Decisions Depend on Economy, Health Measures and Fiscal Support
16 July 2021
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Friday said that the ECB’s decisions would depend on the economy, the removal of pandemic containment measures and the withdrawal of fiscal support.
In an op-ed in the Irish Times, Makhlouf, who heads the Central Bank of Ireland, said that ‘[i]n the very short run, people may not notice a change’ as a result of the ECB’s new strategy.
‘Our policy decisions will now be taken in line with our new strategy, but they will also continue to depend on economic activity, the lifting of the health restrictions introduced to manage the pandemic and the pace at which the government decides to withdraw the significant supports it has put in place’, he wrote.
The euro area economy is gradually reopening thanks to progress in vaccinating people, he said. In Ireland, ‘we can see light at the end of the tunnel’, he said. ‘We expect the Irish economy to recover strongly in the second half of the year but uncertainty regarding the evolution of the pandemic remains.’
The ECB’s new strategy was motivated by the fact that ‘the risk of deflation has become more acute’ than it was when the previous strategy was formulated, he wrote. Under those conditions, the Governing Council ‘wanted to make clear that we would take action to resist inflation that was too low and respond to inflation below our target (as well as, of course, inflation that was above the target)’, he said.
The new inflation objective ‘makes clear that we will tolerate small deviations in either direction over short periods of time to ensure the smooth functioning of the economy’, he said.