Our main challenge is to break the negative feedback loop between the financial system and the real economy. Repairing the balance sheets of financial institutions is a key part of this, and authorities have taken a range of actions to inject capital into banks, guarantee their liabilities and reduce or remove their exposures to bad assets.
In the current environment, a more expansionary monetary policy is thus the necessary reaction of the central bank to maintain price stability. The ECB’s monetary policy, which will always rigorously fight inflation that is too high or too low, is therefore appropriate.