All is revealed

8 May 2003

Any changes the European Central Bank have made are teeny and subject to freewheeling interpretation.

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The European Central Bank said that after a five month review of its monetary policy, it would aim to keep inflation in the euro zone close to 2% in the future, effectively loosening its definition of price stability.

The Governing Council agreed that in the pursuit of price stability it will aim to maintain inflation rates close to 2% over the medium term, the ECB said. That appeared to increase the lower bound on inflation, which under the previous definition could theoretically have been minus infinity.

However, the ECB stressed that it had not adopted an inflation corridor with the new definition. It also said it had not changed its definition of price stability as price rises below 2%.

The ECB added that it would keep its much criticised twopillar strategy, which gives a prominent role to monetary supply growth. However, it would put less emphasis on money supply data when it explained its interest rate decisions.

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