Lower oil prices have provided a boost to Asia’s overall growth (including that of the Philippines’) because most countries in the region are net oil importers. But a prolonged period of cheap oil combined with an already low global inflation environment begets expectations of increased deflationary risk. Such a scenario could render global economic recovery difficult.
By adapting the appropriate monetary policy horizon to the nature of the shock, the ECB makes an important contribution to avoiding unnecessary volatility in output growth. The focus on the medium term in the ECB’s monetary policy strategy embodies a commitment to avoid overly activist and ambitious attempts to fine-tune inflation outcomes.