BCB Director David says de-anchored inflation expectations forced higher rates for longer; adds monetary policy remained effective despite credit stimulus

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BCB Director David says de-anchored inflation expectations forced higher rates for longer; adds monetary policy remained effective despite credit stimulus

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  • Idea is that at the end of the calibration process, will remain in contractionary monetary policy stance.
  • BCB is keeping policy contractionary until it is convinced inflation is heading back towards target.
  • BCB is troubled by inflation expectations trouble them the most, especially for 2028.
  • If BCB finds out the output gap is not neutral, BCB will work with that.
  • Don't have a target for the level of outstanding FX swaps.
  • Central bank will not react to every price shock from conflict, but will not tolerate spillover into broader inflation over time.

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