ECB policy makers stalled in discussions to finalize strategic review


European Central Bank decision-makers are locked in discussions to accept 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 housing costs. .

The 25 members of its governing council meet Wednesday in Frankfurt to seek to finalize the results of the 19-month review, according to two people involved in the discussions. It should not be announced until September but after political decision-makers have reached an agreement on some issues, ECB President Christine Lagarde seeks to complete the discussions.

Two board members told the Financial Times they were confident a formal decision could be made Wednesday, following good progress over dinner Tuesday night.

If an agreement is reached, Lagarde could present the result at an online press conference on Thursday, say those familiar with the negotiations. The ECB declined to comment.

A review of the strategy is likely to result in significant changes in the ECB’s operations.

The most fundamental change is likely to be how it defines its core mandate of “price stability”. After years of failing to raise inflation to its target, the ECB is projected to abandon its target of “close, but below, 2 percent,” which is considered too opaque and implies a limit to growth. prices.

There is broad support in the council for a more direct target of 2 per cent. The central bank is likely to emphasize that its new target is symmetrical, so policymakers will be as concerned about overcoming it as they are below. The goal will be a medium-term goal with flexibility to fluctuate in any direction in the short term.

However. the ECB is unlikely to go as far as the US Federal Reserve, which has formally committed itself to stopping inflation. surpasses its purpose to compensate for a period of low price growth.


Jacob Nell, head of Morgan Stanley’s European economy, said he expected the change would have only “a modest impact on the short-term monetary policy position” that the central bank had already implicitly embraced. the strategy.

But he said other planned changes would have “profound consequences over a longer time horizon.”

Since taking over Mario Draghi’s leadership in November 2019, Lagarde has encouraged the ECB to address growing public and political concerns about climate change; the idea is expected to be a key part of the new strategy after initial opposition from other board members vanished.

The central bank must announce plans for a green shift in its monetary policy by tilting its asset purchase portfolio and collateral rules away from high-carbon companies that do not have a plan to meet the EU’s goal of being zero net by 2050.

The change is likely to be introduced in a few years, as it will require greater dissemination by businesses and the creation of the EU. green classification system for investors, who will determine 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, prompting EU statistical agency Eurostat to add housing to its calculation. of inflation.

House prices are rising in much of Europe and this change would add an estimated 20 basis points to the current rate of inflation, according to recent ECB research. At other times, it reduces the overall pace of price growth.

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