Before the recent spike in inflation, many central banks in
advanced economies were "overwhelmingly" concerned about low
inflation, and failed to restrain rapid price gains by judging
them as transitory, Shirakawa said in a column published by the
International Monetary Fund (IMF) on Wednesday.
By allowing inflation to overshoot their targets, central
banks "forgot the difficulty of taking away the monetary punch
bowl" and failed to tighten policy soon enough, he said.
"Inflation targeting itself was an innovation that came
about in response to the severe stagflation of the 1970s and
early 1980s. There is no reason to believe it is set in stone,"
Shirakawa said.
"Now that we know its limitations, the time is ripe to
reconsider the intellectual foundation on which we have relied
for the past 30 years and renew our framework for monetary
policy," he added.
Shirakawa, who was BOJ governor before incumbent Haruhiko
Kuroda, also criticised the central bank's current forward
guidance committing to keep interest rates ultra-low.
"When the economy is hit by a surprise shock to demand or
supply, forward guidance of continuing low interest rates can
suddenly become too expansionary and inflationary. This may
partly explain what we are seeing now," he said.
During his term as BOJ head until 2013, Shirakawa was
frequently criticised for doing too little too late to pull
Japan out of decades of deflation and economic stagnation.
His successor and current governor, Kuroda, deployed a
"bazooka" stimulus programme in 2013 that boosted growth for
several years, but failed to fire up inflation to the BOJ's 2%
target and left the bank with a dearth of ammunition.
With rising raw material costs keeping inflation well above
the BOJ's 2% target, markets are rife with speculation the
central bank will phase out its massive stimulus when incoming
governor Kazuo Ueda succeeds Kuroda in April.
(Reporting by Leika Kihara
Editing by Shri Navaratnam)
(Corrects to remove extraneous text from headline)
TOKYO, March 2 (Reuters) - Former Bank of Japan (BOJ)
Governor Masaaki Shirakawa called on policymakers to reconsider
central banks' monetary framework based on inflation targets,
given their limits that became apparent from the recent spike in
prices seen in many countries.
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