ECB to Revamp Inflation Goals

Fri, 19th Jul 2019

The European Central Bank has started investigating a potential revamp of their inflation goals, considering the possibility of allowing policymakers to pursue more monetary stimulus in the long term.

Staff are analyzing the institutions current approach, and questioning whether it is worth uholding the current target of ‘less than, but close to, two percent’ now that we are in the post-crisis era.

Draghi is in favour of a symmetrical approach that would allow for flexibility to be above or below the two percent goal. This change would allow the ECB to keep inflation levels elevated in the short term, while they wait to ensure that price growth is entrenched after a period of weakness.

The ECB cannot make changes to the goal without a formal review, but the news that a review is being considered was enough to boost stocks and bonds in the European market. The Euro sliped slightly over the course of the day, but had rebounded within a few hours

Investors believe that a shakeup of the existing framework would be a big step for the ECB, which has spent two decades as a traditional central bank following the Bundesbank model. The bank is slowly shifting into being a more innovative one that is able to use whatever strategies are required in order to keep the economy stable in a challenging environment.

The U.S. Federal Reserve is also embarking on a strategy review, with concerns that inflation has been too weak for too long, and that this has taken away the power for bankst to use policies to bolster the economy should there be another downturn.

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