–Ongoing Strategic Review Will Assess Inflation Measurement and ‘Symmetry’ in Meeting Target
By Laurie Laird
LONDON (MaceNews) – The European Central Bank could continue to rely on its long-term financing operations to provide stimulus to the Covid-stricken euro zone economy rather than expanding its asset purchase programme, according to the Bank’s leader Wednesday.
“We’re going to focus on favourable financing conditions,” said ECB President Christine Lagarde, addressing the virtual “Reuters Next” conference on Wednesday. “If we don’t need the entire envelope” of the Pandemic Asset Purchase Programme “so be it.”
The ECB introduced the PEPP in March, to run alongside its existing Asset Purchase Programme. At a “recalibration”of its policy instruments in December, the Bank’s Governing Council opted only to expand the time frame of its Target Long-Term Financing Operations (TLTROs), which provide conditional loans at a rate as low as -1.0%. The ECB has not adjusted its borrowing levels since before the onset of the crisis, with the bank deposit rate remaining at -0.5%.
Lagarde stood by the Bank’s December economic forecasts, despite the return of economic lockdowns across much of Europe at the end of last year. The ECB believes GDP plunged by 7.3% in 2020 and is poised to expand by 3.9% this year, predictions based “assumptions that are still correct today,” she said. A downgrade will come only if “lockdowns [extend] beyond March.”
The ECB chief continued deflect questions about whether the strength of the euro will further complicate the Bank’s quest to reach its inflation target of close to but below an annual rate of 2.0%. “We will continue being extremely attentive to [the effect] on prices that exchange rates have,” she said.
Publicly, Lagarde has shown little concern over the euro’s 9% jump against the dollar last year. But accounts of governing council meetings suggest that exchange rates have been discussed extensively among rate setters. Minutes of the December meeting are due on Thursday.
The ECB has failed to hit its inflation target for much over the last decade, and inflation fell into negative territory of the final quarter of 2020. The Bank’s ongoing strategic review – which is roughly half completed, according to Lagarde – will examine “over what period of time we measure” inflation and “how symmetric it needs to be.” The review will also assess “the right measurement” of inflation. “I hope we will be better able to account for housing costs,” she said.
Lagarde forcefully defended her intense focus on the environment against of accusations of – in her words – mission creep. Climate change “impacts inflation and financial stability,” she said.
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Contact this reporter: laurie@macenews.com.
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