The European Central Bank has not “tied itself to the mast” with its use of forward guidance on low interest rates, and could raise them if inflationary pressures emerge in the future, ECB policymaker Jens Weidmann said on Thursday.
Abandoning its traditional policy of never pre-committing on future rates, the ECB said a week ago it would keep its interest rates at present or lower levels for an “extended period” – its first use of so-called forward guidance.
Markets are trying to assess how long this period could be.
The ECB offered some clarity in its monthly bulletin, also released on Thursday, saying forward guidance was consistent with, but not directly linked to, its decision in May to extend the full allotment liquidity policy until July 2014.
“The extended period of time over which the Governing Council currently expects the key ECB interest rates to remain at present or lower levels is a flexible horizon which does not pre-specify an end-date but is conditional on the Governing Council’s assessment of the economic fundamentals that determine underlying inflation,” it added in the bulletin.
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