ECB policymakers set out wish list for strategic rethink

In this news, we discuss the ECB policymakers set out wish list for strategic rethink.

FRANKFURT (Reuters) – Five policymakers at the European Central Bank, including President Christine Lagarde, on Wednesday presented proposals to change the way the ECB handles its activities of steering price growth in the euro area.

As the ECB was in the midst of its first strategic review in almost two decades, proposals ranged from buying more green bonds to letting inflation exceed the symbolic 2% threshold – to doing nothing at all .

The ECB failed to meet its target of keeping price growth “below but close to” 2% for almost a decade. And just as the coronavirus pandemic is driving prices down, he’s now wondering if and how to change that target.

Policymakers who spoke at various events throughout the day acknowledged that some of the reasons for weak price growth were beyond their control, but their responses sometimes differed.

The governor of the French central bank, François Villeroy de Galhau, proposed to say that the ECB would “accept inflation above 2% for a while without mechanically tightening” the policy, with the aim of reviving expectations of future growth of the countries. price.

This would be a variation of the Federal Reserve’s new target, which is an inflation rate of 2% on average over an indefinite period. This would give the ECB greater flexibility by not tying it to an arithmetic mean.

His Finnish counterpart Olli Rehn argued roughly along the same lines, calling for “a clearly and genuinely symmetrical target” accompanied by vigorous action to correct any deviation in either direction.

However, Yves Mersch, member of the board of directors of the ECB, was not convinced that the objective of the ECB had to be changed because it had proven itself over a 20-year horizon.

He also argued that new structural forces, such as global supply chains and a more tenuous relationship between unemployment and price growth, meant that old business models were now outdated.

“We cannot continue to hunt ghosts that no longer exist,” Mersch said.


Lagarde had launched the procedure in the morning, throwing his weight behind the idea that the ECB would favor green bonds when buying corporate credit to compensate for the market’s failure to do so.

This would involve abandoning the ECB’s sacred principle of market neutrality, which requires it to buy corporate bonds in proportion to their outstanding amounts, as Isabel Schnabel, member of the ECB’s board of directors, recently suggested. .

“Faced with what I call market failures, (there is) also a question that we must ask ourselves whether market neutrality should be the real principle to drive our… asset purchase program” , Lagarde said at a United Nations event.

Its green momentum was echoed by Austrian central bank governor Robert Holzmann, who later said the ECB was “ready to navigate hitherto unknown waters” to tackle climate change.

“Climate change affects many aspects of monetary policy, including inflation, economic growth, interest rates and the transmission channels of our instruments,” added Holzmann.

Report by Francesco Canepa in Frankfurt, Leigh Thomas in Paris, Tarmo Virki in Tallinn; Edited by Chizu Nomiyama

Original © Thomson Reuters

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