But as policy rates move more firmly into restrictive territory and the energy shock abates, the risks to the inflation outlook have become more balanced. And the outlook for the economy and inflation has become increasingly uncertain, both globally and in the euro area. In this environment, we no longer need to overweight upside risks to avoid worst-case scenarios.
We now need to take into account the risk of overtightening alongside the risk of doing too little. A data-dependent calibration of monetary policy – firmly rooted in a clear reaction function – offers the best way forward. It will enable us to clarify our policy intentions, providing markets with the necessary guidance while keeping volatility in check.