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The European Central Bank’s unity on its new inflation target could be dissolved into division as early as next week, when policymakers meet to discuss changing its focus on rising interest rates. warned its president Christine Lagarde.
Bank-type regulators will meet next Thursday for their first discussion since they launched a agreed unanimously us strategy, which modifies the way the bank sets monetary policy for the first time since 2003.
Lagarde announced the consensus agreement, which included a new inflation target of 2% and greater tolerance for temporary movements above this level.
But speaking on Sunday, he told the Financial Times: “I’m not under the illusion that every six weeks [at monetary policy meetings] we will have unanimous consent and universal acceptance because there will be some variations, some slightly different positions. And that’s fine. “
The decision on when to start ending the ECB’s pandemic stimulus program will be a crucial test of the bank’s new strategy in the coming months. Many analysts expect an announcement as early as September.
Since the start of the pandemic, the ECB has launched a € 1.85 million emergency bond purchase system and lent billions of euros more to banks at profoundly negative rates.
Some members of the governing council have already done so he called to start ending this stimulus after inflation reaches the new ECB target of 2% earlier this year, although price growth has slowed slightly.
The ECB president indicated that she anticipated the battles in advance. “I have neither the expectation nor the excitement that we will be unanimous in all the decisions we make,” he said, adding that he expected “a constant effort” every time the ECB meets to establish policy.
“What we need to do now is redefine our direction to align it with the strategy review,” said Lagarde, who stressed the importance of incorporating the new requirement so that its monetary policy is “especially strong or persistent “when interest rates are close to their lower limit, as they are now.
But Lagarde noted that it would likely withstand an early tightening of current policy, which economists consider the most aggressive stimulus in central bank history. He said “forceful” and “persistent” were “keywords” that policymakers should not “undermine or belittle.”
After failing for much of the last decade to raise inflation to its “close to, but below, 2%” target at the ECB last week replaced him with what Lagarde described as a more “simple, solid and symmetrical” goal. The central bank also said its new strategy could involve “a transitional period in which inflation is moderately above target” before reacting.
“In the face of adversity [economic] shock, you have it especially blunt [policy] reaction because you don’t want to get caught, ”Lagarde said. He added that when interest rates approach the lower limit“ you need to be even longer in the game, that’s why you say “persistent”.
The last time the ECB raised rates was in 2011, just as the eurozone sovereign debt crisis erupted, in what is now generally considered a mistake. Most analysts do not expect its policy rate to increase from a record low of minus 0.5% before 2024, at least a year after the US Federal Reserve. expected to start raising your rate.
Describing the strategy as a “founding document,” Lagarde said it would not make the ECB more obvious. Instead, he said it gave policymakers additional flexibility to tolerate inflation temporarily above and below its target.
Lagarde said the review had examined potential new tools such as the direct distribution of “money by helicopter”To citizens and expanding their asset purchases to include equities or bank bonds, without deciding the likelihood that they will be used by the ECB.
“We examined the full range of anything that might come to your mind,” Lagarde said. “This was part of the intellectual exercise of looking at the whole field of possibilities. But it didn’t go any further. “
After a series of events to analyze public opinion about his policy, Lagarde said he felt “clear and clear” that the two main concerns were climate change and the cost of housing. The review dealt with both.
The ECB plans to adapt its modeling, banking supervision, corporate asset purchase and collateral policy to take into account climate risks. Lagarde said both would address the financial risks of global warming and act as a “catalyst force” to help achieve the EU’s green policy goals.
It will also seek to incorporate the costs of buying and owning a home into the alternative measures of inflation it uses and call on the EU statistical arm to make a similar change to the official harmonized index of consumer prices.
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