Had we not done this, constant nominal interest rates amid falling inflation rates would have led to higher real interest rates and undermined anaemic growth even more. This would have significantly increased the risk of deflation. This is just as harmful as accelerating inflation. As Walter Eucken said: “Deflation distorts the price framework just as much.”1 1/5  BIS central bankers' speeches  Thus, price stability for the ECB means that we have to protect European citizens not only from inflation rates that are too high, but also from a deflationary spiral. This is reflected in our quantitative definition of price stability: an inflation rate of below, but close to, 2% in the medium term. We therefore acted in order to abide by this symmetrical mandate on price stability. But we are aware that we cannot lower our interest rates to an unlimited extent.2 As from a certain level, it becomes more attractive to keep cash – despite the associated costs – than to pay negative interest rates. And even if this point has not yet been reached, we are bearing in mind that further rate cuts into negative territory may have non-linear effects. The reactions of people in extremis cannot be anticipated. But we can also influence market interest rates in other ways. Thus, for example, with our asset purchases we have pushed the yield curve down.
Core inflation, on the other hand, which excludes food and energy, remained stable at 0.9%. For us, the overall inflation rate is the key figure because we protect the purchasing power of citizens, albeit in the “medium term”, not on a month-to-month basis. Given the current high variability of energy prices, indicators of the underlying price dynamics say more about future developments than about the overall inflation rate. We still assume that, because of energy prices, the overall inflation rate will rise until the middle of this year – reaching our “comfort zone”. But one swallow doesn’t make a summer. For in the second half of the year, it is likely to fall again and then reach 1.5% in 2018. So, subdued inflation will be with us for quite some time, but the spectre of deflation has disappeared from the radar of market participants. For this recovery to gain traction, we have to keep our word. The adjustments to our asset purchase programme will be implemented as announced in December – because, first, it contributes significantly to the economic recovery and stabilisation on the price front. And second, monetary policy in times of heightened uncertainty must be a guarantor of stability and 2/5  BIS central bankers' speeches  reliability by being credible. And yet, at the same time, how much longer can we continue to talk about “even lower rates” as being a monetary policy option?