At the same time, financial stability, by ensuring an orderly functioning of the transmission mechanism of monetary policy, helps a central bank in fostering price stability. Hence, from a longer-term perspective, financial stability and price stability are mutually reinforcing policy objectives. At shorter horizons, financial stability and price stability may not always go hand in hand.
Developments in the run-up to the crisis have shown that low and stable inflation rates may well be consistent with the build-up of financial imbalances which, in turn, can create serious risks to price stability. There are, however, safeguards that a central bank can build into its policy framework.