peter praet : the ecb ’ s monetary policy – back to medium - term price stability of below, but close to, 2 % opinion piece by mr peter praet, member of the executive board of the european central bank, published in suddeutsche zeitung, 13 january 2016. * * * ecb remains faithful to its monetary policy strategy the eu treaties define the maintenance of price stability as the european central bank ’ s ( ecb ) primary task. they leave open the exact numerical definition of price stability. in 1998 the governing council of the ecb defined price stability as a medium - term inflation rate of below 2 %. in 2003 it provided additional clarification that it was striving for an inflation rate of below, but close to, 2 %. since mid - 2013 inflation has been below 1 % and, after months of negative rates of inflation, it stood at 0. 2 % in december. critics who see the ecb ’ s efforts to raise the current inflation rate as a change in its monetary policy strategy are mistaken. on the contrary : abandoning the inflation objective of close to 2 % in the medium term would mark a change in its monetary policy strategy. at a time when achieving the objective seems harder, this would be opportunistic and would damage the ecb ’ s credibility. it is precisely in turbulent times that the objective needs to be kept. too low inflation is damaging in the long term and deflation is dangerous since february 2013 inflation in the euro area has moved away from the ecb ’ s medium - term objective. the persistently low inflation has also affected medium and long - term inflation expectations, which are significantly below the levels of previous years. low inflation in the longer term provides only a small buffer against sustained deflation. the expectation of falling prices delays purchases and investment. rising real wages relative to productivity impose a burden on firms and employment. added to this is the fact that the real value of nominal debt increases when there is deflation. not least, deflation can limit the effectiveness of monetary policy, as the central bank can lose control over real interest rates. playing down the risk of deflation would be negligent, especially in times of persistently low inflation. although falling oil prices have recently played a significant role in low inflation, the effect on inflation is not negligible or temporary. for example, falling oil prices quickly affect other sectors, such as transportation. they also foster second - round

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