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European Central Bank policymakers are locked in talks to agree on its first new strategy for nearly two decades, which could be announced as early as Thursday and is likely to change its inflation target and address climate change and the costs of climate change. housing.
The 25 members of its governing board meet in Frankfurt on Wednesday to try to finalize the results of the 19-month review, according to two people involved in the discussions. It was not to be announced until September, but after political leaders reached an agreement on some issues, ECB President Christine Lagarde wants to complete the talks.
Two board members told the Financial Times they hoped a formal decision could be made on Wednesday, following good progress over Tuesday night’s dinner.
If an agreement is reached, Lagarde could present the result at an online press conference on Thursday, those who knew said so. The ECB declined to comment.
The revision of the strategy is likely to lead to significant changes in the ECB’s operations.
Probably the most fundamental change is how it defines its basic mandate of “price stability.” After years of failing to raise inflation to its target, the ECB is expected to drop its target “close to 2%, but below”, which is considered too opaque and implies a limit on price growth.
There is broad support for the council to achieve a simpler 2% target. The central bank is likely to emphasize that its new target is symmetrical, so policymakers will be as concerned about surpassing it as they are below it. The goal will be a medium-term goal with flexibility to fluctuate in any short-term direction.
Despite this. the ECB is unlikely to reach the US Federal Reserve, which has formally pledged to stop inflation exceed your goal to compensate for a period of low price growth.
Jacob Nell, head of European economics at Morgan Stanley, said he hoped the change would only have “a modest impact on short-term monetary policy stance” as the central bank had already implicitly adopted the strategy.
But he said other expected changes would have “profound consequences over a longer time horizon.”
Since taking over from Mario Draghi in November 2019, Lagarde has urged the ECB to address growing public and political concern about climate change; the idea is expected to be a key part of the new strategy after the early opposition of other board members fades.
The central bank is expected to announce plans for one change of green in its monetary policy, tilting its asset purchase portfolio and guarantee rules for high-carbon companies that do not plan to meet the EU’s goal of being zero net in 2050.
The change is likely to be phased in over several years, as it will require further dissemination by companies and the establishment of the EU. green classification system for investors, who will establish which areas are climate-friendly.
The central bank will also address public concerns that monetary policy does not take sufficient account of rising housing costs, putting pressure on EU statistical body Eurostat to add housing to inflation.
House prices are rising in much of Europe and this change would add about 20 basis points to the current inflation rate, according to recent ECB research. At other times, it would slow the overall pace of price growth.
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