The ECB balance of risks for price stability and growth provides useful information on the Governing Council’s assessment of risks to the euro area outlook. Abstracting from unconventional monetary policy measures, an analysis since mid-2003 shows that: i) upside risks to inflation are associated with rate hikes, ii) downward risks to growth with rate cuts, and iii) in the case of conflicting signals, inflation takes priority.
Figure 1. ECB balance of risks and key ECB policy rates Sources: ECB and authors’ calculations. Since Sept. 2014 (vertical dashed line), no comment on inflation risks, except for downside risks from Sept. 2015 to March 2016. The DFR cut of 8 Oct. 2008, reversed the day after, is not shown.