EconomicReason

In yesterday’s speech at the ECB conference on the role of money in monetary policy, Philipp M Hildebrand, member of the Governing Board of the Swiss National Bank, concluded:

In the case of the SNB, the flexible nature of the policy framework and the importance attached to money and credit variables means that in an effort to avoid potential long-term financial distortions from emerging, the Governing Board could conceivably tighten monetary policy even if our inflation forecast signals no imminent inflation threat.

The Swiss monetary policy strategy, which is similar to inflation targeting, does indeed allow such action, due to its flexibility. However, such a statement goes against the spirit of most pure consumer price inflation targeting strategies. With that statement, Hildebrand was also strongly backing the ECB’s monetary analysis, which is not uncontested. Not only the SNB, but also other proponents of European central banks made similar remarks in recent months. The tide seems to be turning, however, it is doubtful whether it is not too late to stop the worldwide liquidity Tsunami unleashed by inflation targeting and the neglect of money in monetary policy.