The definition of price stability is therefore an essential feature of our monetary framework. Originally, when the euro was created, price stability was defined as a “less than 2%” increase in the overall price index. That would theoretically allow for zero or even negative inflation. The definition was described as “asymmetric,” meaning that the Eurosystem would react to excess inflation but would be indifferent to low inflation or even deflation. But that was never the intention. In 2003 the definition was adjusted in order to eliminate any ambiguity. Price stability is now defined as “less than but close to 2%.” The current definition is therefore fully symmetric. It makes it clear that the central bank is equally concerned by inflation that is too low or too high. This is not only a question of semantics. Central banks’ perceived objectives determine expectations and the behavior of private agents. If a central bank is seen as equally  BIS central bankers’ speeches  1  intolerant of both high and low inflation, the economy will more easily stabilize within the acceptable inflation range. Stability of inflation expectations has improved the capacity of euro-area economies to absorb the post-Lehman shock: While inflation became negative for a few months in 2009, expectations did not change and deflation was never a threat. This episode illustrates the credibility achieved by the Eurosystem in approaching price stability in a symmetric fashion. Together with the definition of price stability, the “two pillars” approach is another important feature of the Eurosystem’s framework.
In parallel to assessing future economic prospects, the European Central Bank’s governing council looks independently at the dynamics of money and credit aggregates. This has proved very useful in the past to detect long-term risks to price stability, in both directions. The message today is clear: both money and credit are growing very slowly in the euro area as a whole. The M3 money-supply aggregate grew by 2.1% in September. These trends do not signal deflation, but warrant monitoring and vigilance when facing an uncertain future. Obviously, intentions may not always suffice and must be backed, when necessary, by appropriate and timely actions. Recent decisions by the governing council regarding both policy rates and liquidity provision show that we are ready to make the necessary decisions. Many instruments remain available should further risks materialize. There should be no doubt that the Eurosystem will ensure that price stability, as currently defined, will be maintained in the euro area. 2  BIS central bankers’ speeches