Our higher level of interest rates we explain as a reflection of the fact that we continue to operate closer to capacity than elsewhere and with a tighter labour market. I'm not sure that our critics are convinced, let alone mollified! But I do find it encouraging that they continue for the most part to support the policy objective of continuously low inflation even if from their perspective we are too rigorous in our pursuit of that objective! We have in fact reduced interest rates by ¼% on four occasions so far this year. What is disappointing - both to us and our critics - is that while we have been able to compensate for the dampening effects  4  BIS Review 76/2001  of external factors - the exchange rate and the global economic slowdown - by encouraging stronger domestic consumption, we have not been able to alter the external environment itself, which is what our critics in the suffering sectors would really like to see. We have in effect increased the sectoral imbalance rather than reducing it. That may seem like second best but it is as much as anyone can reasonably ask of monetary policy. Mr Chairman, I have gone on for too long and perhaps you will think that I have been overly-defensive both of myself and of my central banking colleagues. That was not my intention. My intention rather was to explain what can and what cannot reasonably be expected of monetary policy in the present world economic situation.
That criticism in my view was wholly unjustified. It was a classic example of expecting too much from monetary policy. The role of a central bank is - as I said earlier - essentially to maintain overall macroeconomic stability, and the measure of its success is consistently low inflation. On that criterion the ECB has been substantially successful. The Euro area economy grew at above trend with core inflation nevertheless remaining within the ECB's tolerance range of 0-2%, even though the headline measure of inflation, influenced by rising energy and food prices which were essentially shocks on the supply side, and by the weakness of the exchange rate, moved above that range. Had the ECB attempted during this period to target the exchange rate, presumably by raising interest rates, it is not at all obvious to me that it would have succeeded; and even if it had, the likelihood is that it would have put the internal stability of the euro-zone economy at risk. More recently the ECB has sometimes been criticised as slow to respond to the weakening of the US economy. Implicit in that criticism no doubt is a strong conviction about the extent and duration of the US slowdown and its likely impact on the euro area. As I have said there is in fact a great deal of uncertainty about that.