The BCE initial monetary strategy, adopted in 1998 and reviewed in 2003, was revised the last time in 2021 with the introduction of an inflation target of 2% in the medium term.
The European Central Bank has warned that new challenges, ranging from trade and geopolitical tensions to artificial intelligence and climate change, could make inflation more volatile, justifying a more flexible monetary policy strategy revealed on Monday.
These structural changes suggest “larger differences compared to the objective” of 2% inflation that the institution of the euro zone has set for itself, pushing it to use its panoply of tools “flexible (face) to new shocks”, according to a press release.
The BCE initial monetary strategy, adopted in 1998 and reviewed in 2003, was revised the last time in 2021 with the introduction of an inflation target of 2% in the medium term.
Faced with a global context in full mutation, the ECB did not want to wait for so long to readjust its strategy.
It appears from its reflections that all the monetary policy instruments available to the Guardians of the Euro -directing rate, interventions on the bond markets, undifferentiated or targeting states, giant and conditioned loans granted to banks, … – “will remain in its panoply”, indicate the conclusions.
But “the choice, the development and implementation of these instruments will be flexible enough to be able to respond flexible to the developments in the environment of inflation”.
This strategic review “allows us to rely on even more solid foundations to conduct monetary policy and accomplish our mission to maintain price stability in an ever more uncertain environment,” said Christine Lagarde, president of the ECB, in a press release.
The ECB is already coming out of an eventful period with the economic recovery that followed the Pandemic of COVID-19 and the Russian war in Ukraine which made inflation flambé, in particular via energy prices and the supply chains, with wages ending up catching up the prices.
The strict monetary policy applied in response made it possible, via a sharp increase in rates, to bring inflation today in the nails of the BCE’s mandate.
From now on, the Council of Governors of the Bank, which decides on monetary policy, will take into account “not only of the most likely trajectory of inflation and the economy, but also the risks and uncertainties that surround it,” concludes the press release.
The first meeting applying the new strategy will take place on July 23 and 24.
