The Governing Council aims to maintain inflation rates “below, but close to, 2% over the medium term”. At the current end, inflation rates in the euro area are significantly below 2%; in fact, the most recent inflation figures were negative. Without doubt, this puts the Governing Council in quite an uncomfortable situation.
An alternate view is that since the Reserve Bank is expected to provide liquidity against these securities under stressed conditions as part of its lender of last resort (LoLR) obligation, at least a pre-specified portion of these securities should be taken into account for assessing compliance with Basel III’s Liquidity Standards. The Reserve Bank will take a view on this in due course. 37.