The European Central Bank (ECB) has apparently agreed on a new strategy.

On Wednesday evening, after a meeting of the Governing Council, its highest monetary policy body, the central bank announced that ECB President Christine Lagarde and Vice President Luis de Guindos wanted to present the details on Thursday.

Christian Siedenbiedel

Editor in business.

  • Follow I follow

    The Governing Council said it was about “a lot of paper”.

    Members reported that the understanding was in many ways what was expected.

    The central bank has agreed on an inflation target of simply 2 percent, instead of "below but close to 2 percent" as was previously the case.

    It was important to Lagarde to have a simple goal.

    For this purpose, this inflation target should be understood symmetrically; downward deviations should be combated in the same way as upward deviations.

    The decision on the “digital euro” is not yet to be included in the resolution.

    The inclusion of house prices in the measurement of the inflation rate was not very controversial.

    Allegedly, the ECB council members are also said to have agreed on steps to make the central bank greener - without details being known on Wednesday.

    Up until the end, there had been discussions in particular about how the central bank should react in future to inflation overshooting its target.

    It was fought over whether to include elements of "average inflation targeting" like the US Federal Reserve (Fed).

    This means that after a period with inflation below its inflation target, the central bank will tolerate overshooting for a while so that the target inflation rate can be reached on average afterwards.

    Official press conference on Thursday

    Bundesbank President Jens Weidmann had spoken out against the Friends of the Ludwig Erhard Foundation. He said holding still if inflation exceeded target in the medium term could be misunderstood. “It could therefore be misinterpreted as an attempt by monetary policy to put the sustainability of public finances above the goal of price stability.” One has to be careful here.

    There were certainly voices in the Governing Council who had advocated certain elements of “average inflation targeting”. The Finnish central bank governor Olli Rehn wanted to have so-called "make-up strategies" included in the considerations, which temporarily allow a certain excess of inflation. ECB chief economist Philip Lane had emphasized that on the one hand he was skeptical of an explicit strategy with an average inflation target. However, it could make perfect sense to let the inflation rate overshoot the target for a certain period of time if it was previously well below it.

    ECB board member Isabel Schnabel said in an interview that implementing and communicating a real average inflation target is difficult. In addition, it is unclear which period should be used for the average calculation. She is skeptical about that. However, the central bank's previous forward guidance, i.e. its outlook, already indicates a certain willingness to accept an overshoot of inflation and only raise interest rates once a "robust convergence" to the inflation target has been consistently reflected in the underlying inflation dynamic : "There are certainly ways to make this commitment even clearer."

    One hears from the Governing Council that it is an important concern of ECB President Christine Lagarde to get a simpler and more understandable inflation target than “below but close to 2 percent”. A target with average inflation might not be such a good idea, it is argued. Perhaps one could also formulate a simple goal as a compromise and then take the average aspects more into account in monetary policy practice. Michael Schubert, ECB expert at Commerzbank, said: "We forecast that the Governing Council will agree on a target value of 2 percent, emphasize its commitment to symmetry even more than before and emphasize in particular that 2 percent is not an upper limit."