MNI POLICY: Symmetrical Target Easier To Understand-Weidmann

An explicitly symmetrical inflation target would be easier to understand than the European Central Bank's current wording, Bundesbank president Jens Weidmann said on Thursday, in remarks which come as the ECB is set to review its monetary policy strategy.

Monetary policymakers "cannot control inflation right down to the decimal point, let alone in a certain month or quarter," he told an OMFIF Virtual Panel, "but flexibility could also be achieved through design features other than a target band. In particular, the existing medium-term orientation provides a high degree of flexibility."

Weidmann also said he would be willing to overlook some methodological shortcomings in the inclusion of owner-occupied housing in the ECB's harmonised inflation measure. But another approach, average inflation targeting, presents problems.

"A past-dependent monetary policy can encounter time inconsistency problems. There might be situations in which there are strong incentives to depart from the strategy. And that would come with a price tag: the strategy's credibility could suffer."

The Bundesbank chief warned that a surge in government borrowing during the Covid crisis could lead to a loss of independence for the ECB, adding that policymakers should not rule out an eventual jump in inflation.

"We need to make it very clear," he said, "that we are not going to place monetary policy at the service of fiscal policy. If we create a different impression, we are putting both our independence and our credibility at risk."