This is because the transmission of monetary policy decisions to the economy takes place with relatively long lags. Estimates of these lags between interest rate changes and their effects on inflation vary between one and two years. As a consequence, central banks have to look ahead before they take monetary policy decisions. A case in point was the recent decision by several continental central banks, including the Banque de France, to raise their main refinancing rates on 9th October. This move was justified by the need to pre-empt inflationary pressures early enough, although current inflation remained low. In my view it is very important to make the public aware of the concept of the “pre-emptive strike”, which is at the heart of central banking. 1.2. Intermediate target: more arguments in favour of monetary targeting, with a caveat In order to provide an anchor to inflation expectations and to look ahead, central banks make public an intermediate target which they commit themselves to respecting. Announcing an intermediate target also enhances the accountability of the central bank. This is why Article 12 of the Statute of the ECB explicitly refers to decisions relating to intermediate monetary objectives as one of the main responsibilities of the Governing Council of the ECB.
Mr. Hannoun discusses the operational framework for EMU and the challenge of managing price stability Speech by the Deputy Governor of the Banque de France, Mr. Hervé Hannoun, at the Financial Times European Economic and Monetary Union Conference in London on 20/11/97. I am delighted to take part in this discussion on the framework for the single monetary policy in Stage Three. I will address what I consider to be the two main categories of issues in this context: those related to monetary policy strategy on the one hand, and those related to the execution of monetary policy operations on the other hand; in other words, strategic and operational issues. 1. STRATEGIC ISSUES What are the main strategic issues relating to the formulation of the single monetary policy? I will consider in turn: •  the final objective,  •  the intermediate target,  •  the role of the exchange rate as an indicator, and  •  the starting level of interest rates in the euro area at the end of next year. 1.1. Final objective: a quantified definition of price stability The final objective of the single monetary policy is clearly stated in the Maastricht Treaty: according to article 105, “the primary objective of the ESCB shall be to maintain price stability”. Only a monetary policy geared towards the objective of price stability can create the conditions for durable and sustainable growth.