By The Financial District
Jul 15, 20212 min
The European Central Bank will chart a new policy path at its next meeting to reflect its change of strategy and show it is serious about reviving inflation, ECB policymakers said earlier in the week, Francesco Canepa and Marc Jones reported for Reuters.
Announced last week, the ECB's new strategy allows it to tolerate inflation higher than its 2% goal when rates are near rock bottom, such as now. This is meant to reassure investors that policy will not be tightened prematurely and cement their expectations about price growth, which has lagged below the ECB's target for most of the past decade.
ECB President Christine Lagarde, her deputy Luis de Guindos, and Portugal's central bank governor Mario Centeno said on Monday the new strategy will be incorporated into the central bank's policy guidance at the July 22 meeting.
"Given the persistence that we need to demonstrate to deliver on our commitment, forward guidance will certainly be revisited," Lagarde told Bloomberg TV.
The ECB's current guidance says it will buy debt for as long as necessary and keep interest rates at their current, record-low levels until it has seen the inflation outlook "robustly converge" to its goal.
It also commits the bank to reinvesting proceeds from maturing bonds for a long time after that.
Lagarde did not elaborate on how that message might change, simply saying the aim will be to maintain "favorable financing conditions." But Governing Council member Centeno later said he would back decoupling the ECB's Asset Purchase Programme (APP), introduced in 2014, from interest rates.
"I understand that we gain from disentangling the APP and interest rates in the forward guidance," Centeno told Politico. "In the current format one of the decisions is anticipating the other in a way that I don't think is effective."