Wunsch sceptical on forward guidance
Belgian governor says tool may be effective in a stable environment of below-target inflation
Forward guidance is ill-suited to dealing with a volatile environment of above-target inflation, said Pierre Wunsch, governor of the National Bank of Belgium (NBB).
Committing to future policy actions based on inflation’s evolution may also limit monetary policy options and restrict the European Central Bank (ECB) to a set of actions it may not want to follow through with when the time comes.
“Forward guidance works best in a world where everything is evolving in a very gradual way,” said
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