By stabilising inflation and hence inflation expectations at a level below, but close to, 2% in the medium term, we make sure that the steady state level of nominal interest rates will be supported by an inflation compensation component of that magnitude.
That in turn will be beneficial for financial institutions as in many cases their business models have difficulties in coping with very low nominal interest rates. This inflation buffer will also contribute to safeguard monetary policy’s room for manoeuvre during downturns. While all this is already underlying our definition of price stability from the beginning, the arguments supporting this choice have even gained relevance.