Depending on the speed of price changes and tightness of supply and demand conditions, there might be a situation where an appropriate policy response would be called for before the price index reached the target. The currently prevailing argument for inflation targeting includes dissipating the current excessive deflationary expectations of the public by raising their inflationary expectations.
Yet the profitability of European banks remains weak, below that observed in the US or in Asia. This can be partly explained by the cyclical challenges the banks have been confronted with. The combination of low economic growth with a protracted period of low interest rates has clearly weighed on their profitability by exerting downward pressure on net interest margins.