Europe

ECB agrees on new inflation target of 2% and allows overshoot

ECB agrees on new inflation target of 2% and allows overshoot

policy

2 minutes

19 minutes ago

Redesigned strategies could justify authorities to maintain ultra-loose monetary policy longer

Redesigned strategies could justify authorities to maintain ultra-loose monetary policy longer

European Central Bank in Frankfurt, Germany

Photo provider: AFP

European Central Bank policymakers have agreed to raise the inflation target to 2%, leaving room for overshoots if necessary, officials familiar with the matter said.

This decision represents a significant change from the previous goal of “less than 2%, but close to 2%,” which some policy makers felt too vague. A consensus was reached at the special meetings on Tuesday and Wednesday, completing the ECB’s first strategic review in nearly 20 years.

The revamped strategy justifies the authorities to maintain ultra-loose monetary policy longer, as it strives to reverse inflation below its year-long target, which has squeezed the eurozone’s economic potential. May be given.

As the economy recovers from the pandemic, it will also be important in guiding central bank action. Policy makers are expected to discuss after the summer how to end emergency measures, including a highly flexible € 1.85 trillion bond purchase program.

Fiscal and monetary policy

An ECB spokesman declined to comment. The report helped push European government bonds across the board on Thursday morning, with yields on German 10-year securities dropping to a three-month low.

The official results of the review will be released Thursday at 1:00 pm Frankfurt time, and President Christine Lagarde will hold a press conference 90 minutes later.

It also covers a wide range of other policy issues, including how to support the fight against climate change, the interaction of fiscal and monetary policy, employment trends, and globalization.

Inflation targeting was at the core of the assessment. Lagarde treated it symmetrically last month by policy makers, who promised to treat too low and too high results equally, but the current wording calls their commitment “observers.” It may have made it confusing for the market. “

The results address it with the aim of establishing inflationary expectations that are in line with new goals between investors and the general public.

Jacob Kierkegaard, Senior Fellow of the German Marshall Foundation, said:

“But, of course, the reality is that even such a goal potentially gives the ECB a lot of discretion.”

The euro remained almost unchanged in the report, falling 1.2% to $ 1.1798 in Frankfurt at 9:56 pm.

Skepticism

The ECB’s approach differs from the average inflation targeting policy announced last year by the Federal Reserve Board after its own review.

Deutsche Bundesbank Governor Jens Weidmann is one of the officials skeptical of such an approach. He said maintaining loose policies when actual inflation was above target in the medium term could give the impression that central banks intentionally keep government borrowing costs low. He said it would undermine independence from what is called domination.

Inflation is already projected to be well above the target by the end of this year, but Lagarde and her colleagues have repeatedly stated that they expect it to be below the target in the medium term.

Board member Isabel Schnabel hinted that the ECB might allow an overshoot on Saturday. In a speech in Germany, she said policymakers need to make the actual underlying inflation dynamics appear to be in line with expectations.

“Such patience can result in inflation that is slightly above our goal for a temporary period,” she said. “This is a necessary and proportional requirement.”

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http://www.luxtimes.lu/en/european-union/policy-ecb-agrees-on-new-inflation-goal-of-2-will-allow-overshoot-60e6ca23de135b923617cf1f ECB agrees on new inflation target of 2% and allows overshoot

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