To preserve its contribution to growth and employment, it is essential that inflation expectations remain anchored in spite of recent price developments. It goes without saying that we did not complain about the headline of the Financial Times’ article on the rate hike. The article was entitled “ECB becomes Bundesbank”.
Before the crisis, banks’ demand for liquidity was predictable; it was set by reserve requirements. During the turmoil, unpredictable precautionary liquidity hoarding emerged as the dominating factor behind the demand. There were two important consequences. First, accurate measurement of the neutral level of aggregate liquidity became impossible; and second, the distribution of liquidity between banks started to matter.