ECB’s Nowotny: ECB should be ready to disappoint markets sometimes

In a German newspaper interview published on Thursday, the outgoing European Central Bank (ECB) Governing Council member Ewald Nowotny echoed the recent comments by the ECB Vice President Luis de Guindos, who said the central bank must be critical of market expectations and base its decisions on macroeconomic data.

Key Quotes:

“In past years we perhaps followed markets’ expectations too intensively and avoided disappointing them.” 

“I am of the opinion that central banks should be the decisive institution and must therefore sometimes disappoint markets.”

When asked if he favors inflation targeting along the lines of what the Czech, Israeli or Swedish central banks do — aiming for 2% plus or minus one percentage point.

He said: “I would support such a view because it means that inflation of 1.6% is also within the target area and therefore requires no monetary policy measures.”

“Draghi, by contrast, interprets ‘symmetry’ in such a way that lower interest rates are in place for a longer period: ‘lower for longer’ is the slogan here. I actually consider that to be a problematic signal.”