— Rate setter says the Bank has lost the “trust” of the public
By Laurie Laird
LONDON (MaceNews) — A key European Central Bank official Tuesday suggested adjustments to bank’s mandate, particularly the timing of returning inflation to target, while hinting that historically-loose monetary policy could become ever-less effective in stimulating economic growth.
“It could be optimal to lengthen the ‘medium term’ when monetary policy is already highly accommodative,” said ECB Governing Council member Isabel Schabel in prepared remarks to a monetary policy webinar sponsored by the Bank of Finland. The ECB’s mandate requires the bank to bring inflation to a level of close to but below an annual rate of 2% over the medium term, far above the average pace of 0.8% since 2014, according to Schnabel. Eurozone inflation has sunk below zero over the past three months.
Given that record, Schabel admitted that the ECB may have lost credibility with investors and consumers. “Trust in the ECB remains unacceptable low and has fallen over time,” she said, noting that the use of unconventional monetary instruments has “introduced concepts and terminology that are hardly accessible to a large part of our society.”
Schanbel’s address comes a week after ECB President Christine Lagarde hinted at a reinterpretation of the Bank’s price stability mandate, suggesting that the euro zone’s key inflation measure, the HICP, may not accurately measure price pressures in the bloc. The ECB has currently conducting a strategy review, its first since 2003.
Schanbel also voiced concerns that additional rounds of monetary stimulus may have less benefit that measures undertaken at the onset of the Covid-related financial crisis, and queried the efficacy of rate cuts with the ECB’s bank rate standing at a record low of -0.5%. “We may not know precisely where the effective lower bound lies, but we know that there is one.”
Talk of a refinement of the ECB’s mandate raises questions over whether the Bank could unleash even more unconventional measures at its rate-setting meeting 10 December. The governing council announced no policy change following its meeting at the end of October, but has promised a “recalibration” reflecting updated forecasts at its final meeting of the year.