Central banks should not only be independent from political pressures but also from short-term pressures such as financial markets’ perceptions of inflation, ECB policymaker Francois Villeroy de Galhau said on Tuesday.
Global central banks are facing increased calls from politicians on both sides of the Atlantic to conduct easy monetary policies that suit their agendas.
Meanwhile, bond yields have dropped recently in the face of weak economic data, putting pressure on central banks to carry out drastic new monetary stimulus to keep inflation expectations from collapsing.
“We take account of market indications, but we must not be market dependent; this includes not relying too exclusively for inflation expectations on market-based measures,” Villeroy told a conference at the French central bank, of which he is also governor.
“We are data dependent and I say this in particular for the ECB: in our coming Governing Council meetings, we will assess actual economic data and we will act accordingly if and when needed,” Villeroy added.
A key gauge of financial markets’ long-term expectations for inflation in the euro zone recently fell to as low as 1.1 percent.
Although it has since edged up to 1.3 percent, that is not only well below the ECB’s inflation target of close to 2 percent, but also less than where the gauge stood when the central bank launched its bond-buying program in 2015.