The European Central Bank (ECB) reaffirmed its monetary policy strategy, updating it marginally, in a statement based on an assessment of this strategy published on Monday 30 June.
In particular, the ECB’s Governing Council is of the opinion that “price stability is best maintained by aiming for two per cent inflation over the medium term, [and its] commitment to this objective is symmetric”. Therefore, “negative and positive deviations from this target [are] equally undesirable”, it adds.
To define an appropriate monetary policy, the ECB will have to consider “ongoing structural shifts” in relation to geopolitics, digitalisation, artificial intelligence, demographics, threats to environmental sustainability and developments in the international financial system. It should be noted that the monetary institute is committed to ensuring that the Eurosystem takes full account of “the implications of climate change and nature degradation for monetary policy and central banking”.
All of these “challenges” suggest that “the inflation environment will remain uncertain and potentially more volatile, with larger target deviations in both directions”, according to the ECB.
To carry out its mission, the EU institution will take into account the most likely path of inflation and the economy, but also the risks and uncertainties surrounding it, notably through “scenario and sensitivity analyses”.
It reiterates that it has an arsenal of monetary policy instruments at its disposal, foremost among them the setting of key interest rates. When these rates are close to the lower bound or in order to maintain the smooth transmission of monetary policy, other instruments may be used, namely longer-term refinancing operations, asset purchases, negative interest rates and forward guidance on key rates. The ECB also reserves the right to develop new instruments to respond to macroeconomic shocks “flexibly” and in a proportionate manner and to protect the transmission of monetary policy.
See the ECB statement: https://aeur.eu/f/hn9 (Original version in French by Mathieu Bion)