ECB executive board member Bini-Smaghi is one the wires with a theoretical discussion of the role of central banks in avoid asset bubbles. In his speech he raises a very fundamental and interesting question, one that goes against the ECB’s core mandate: Is focusing on price stability enough? A pure focus on price stability ignores the risks of financial stability.
He is not sold on monetary policy reacting to threats to financial stability, saying the case has not yet been made, but it suggests the ECB is at least discussing changing its robotic focus on price stability (which forces an -ill-timed rate hike in the spring of 2008 as the global economy was rapidly slowing and the banking crisis accelerating…).
This a potentially very important macro development which should be watched in the months ahead.
EUR/USD continues to stall at 1.4920 and trades now at 1.4895.
