ECB defends forward guidance on interest rates

The European Central Bank (ECB) on Thursday defended its forward guidance on interest rates in its monthly bulletin as a way to effectively maintain price stability . "At the current juncture, forward guidance contributes to the ECB's pursuit of its mandate of maintaining price stability effectively, within the framework and in full respect of its strategy," said a statement in the monthly bulletin published on Thursday. The ECB president Mario Draghi told a news conference last Thursday that the key ECB rates to "remain at present or lower levels for an extended period of time". The announcement made by Draghi sparked speculation that there might be a shift of ECB's monetary policy. The ECB has a tradition of never pre-committing on future interest rates. Joerg Asmussen, a member of the Executive Board of the ECB, has been quoted as saying that the forward guidance on interest rates will go beyond 12 months. However, the ECB on Thursday said in the bulletin that "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". According to the ECB report, the expectation of the governing council is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics. "The monetary policy stance remains geared towards maintaining the degree of monetary policy accommodation that is appropriate given the current outlook for price stability and towards the need to promote stable money market conditions," said the report.