The Governing Council of the European Central Bank (ECB) launched on Thursday 23 January, the review of the monetary policy strategy adopted since 2003. This review, the results of which are expected at the end of 2020, will include the ECB's action in the fight against climate change.
This review will concern “how we deliver, how we measure, what tools we have, how we communicate”, said ECB President Christine Lagarde, promising to listen to all stakeholders. She hoped that conclusions on a new strategy would be drawn and presented “in November or December”, with this exercise taking place in parallel with the normal monetary policy activity of the Frankfurt Institute.
For Mrs Lagarde, all opinions are welcome. There may be differences of opinion on the way forward within the Governing Council that will prevent unanimity, “but a decision is needed”, she stressed.
One aspect of this review will certainly concern monetary policy in a low interest rate environment. Unchanged on Thursday, the ECB's main key rates will remain low, or even negative, until the medium-term path of inflation has returned to its target, i.e. a level close to, but below 2%. Inflation was 1.3% in December 2019.
“I am concerned about low rates”, because they mean low growth and hampers our monetary room for manoeuvre in the event of macroeconomic shocks, Mrs Lagarde said, reminding Member States of their responsibility to accompany monetary policy by using fiscal leverage.
The challenge of climate change will be another “important” part of the review, even though “we are already taking action” at the ECB, the former IMF Director stressed. She cited the use of sustainability criteria for investment via the ECB staff pension fund (portfolio of 1 billion euros) and the increase in ‘green’ investments, provided the securities in question were liquid, via the ECB's own funds (portfolio of 20 billion euros).
The monetary institute will also review the possibility of promoting the purchase of ‘sustainable’ financial assets through its monetary policy, in particular its private securities repurchase operations in the context of the revival of quantitative easing (portfolio of 200 billion euros out of a total of 2,000 billion euros).
It should be noted that Mrs Lagarde endorsed the Bank for International Settlements' assertion that climate change poses a risk to financial stability. And to note in passing the few actors who take such a risk into account in their activities.
On the economic situation within the euro area, the ECB President surmised that downside risks continue to dominate, even though trade tensions seem to be slowly easing. She noted that the President of the European Commission, Ursula von der Leyen, would travel to Washington in “February” to negotiate a trade agreement with US President, Donald Trump.
Finally, questioned on the state of preparation of the ECB for the exit of the United Kingdom from the European Union in 10 days, Mrs Lagarde recalled the actions undertaken such as the agreement in March 2019 on a currency swap with the Bank of England (see EUROPE 12208/26) as well as the repeated requests to the banking sector to adapt to the reality of Brexit.
See ECB press release on the review of the monetary strategy: http://bit.ly/2uuiOk4 (Original version in French by Mathieu Bion)