Do investors have to worry if the European Central Bank's (ECB) inflation target in the future is a straight 2 percent, instead of “below, but close to 2 percent” as before?

Many savers may say: “I don't care.” One might think that ultimately it doesn't matter whether the savings in the account are consumed by inflation of 2 percent or not quite 2 percent.

Christian Siedenbiedel

Editor in business.

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    But the central bank's new strategy, which ECB President Christine Lagarde presented on Thursday, is definitely relevant for investors: In particular, if the central bank wants to accept a "moderate" overshoot of inflation over its target for a period of time, that can mean that it keeps interest rates low for longer. The Association of German Banks said that the negative interest rates could remain with savers longer than expected.

    Bundesbank President Jens Weidmann tried on Friday to assure that the ECB would not now consciously target inflation rates above 2 percent.

    “An inflation rate of two percent in the medium term is clear and easy to understand as a goal.

    We are not aiming for lower or higher rates.

    That was important to me, ”said Weidmann.

    However, monetary policy will now tend to be even more "deaf", that is, it will remain relaxed for longer, said Eugen Keller, capital market specialist at the Frankfurt bank Metzler.

    Holding cash becomes less attractive

    What does that mean for savers? Holding cash is likely to become even less attractive if the ECB also allows inflation rates above 2 percent. There are still around 2.6 trillion euros of German savers in current accounts. But two percent inflation can hardly be beaten at the moment, even with overnight and fixed-term deposit offers.

    The Dax, on the other hand, might even benefit from slightly higher inflation rates, says Andreas Hürkamp, ​​Commerzbank stock specialist. "It is very important for the stock markets that the ECB will react even more calmly to rising inflation in the future, since the stock markets in the euro area continue to depend on the drip from the central banks," said Hürkamp. The change of course by the ECB is a signal for the stock markets that the relatively high valuation of the stock markets in the euro area will continue for the time being: “Because the low interest rate environment, which has persisted for ever longer due to the very relaxed ECB policy, is increasingly forcing even risk-averse investors to take more risks in order, for example, to buy stocks that are already highly valued.

    According to economic figures from China, the Dax fell significantly on Thursday, but recovered a bit on Friday and was trading at 15,688 points at the close of trading.

    The consequences for bonds are not yet very clear, says David Zahn, head of European bonds at the Franklin Templeton fund company.

    “The new course of the ECB is roughly speaking a continuation of the current monetary policy, with 2 percent set as the inflation target,” says Zahn.

    “We will have to wait for the next ECB meeting in order to better understand what exactly will change in operational implementation.” First of all, the bond markets continue to benefit from a generally accommodative monetary policy.

    Steeper yield curve

    “The market is still debating what level of inflation the central bank will tolerate in the future,” says Ulrich Stephan, chief investment strategist for private and corporate customers at Deutsche Bank. Irrespective of this, the discussion about reducing the bond purchase program is likely to lead to an increase in long-term capital market rates. He said there could be upside surprises in inflation expectations. Investors should be prepared for a “steeper yield curve”: Short-term interest rates remained close to zero for some time, long-term yields should rise, with corresponding price losses for bonds. The recovery tendencies of the global economy should, however, lead to higher sales in companies, which should fundamentally support equities.

    "In view of the continuation of the ultra-expansionary monetary policy and possibly even further falling yields, there are many arguments in favor of a resurrection of gold," said Eugen Keller from Bankhaus Metzler. The gold price had risen temporarily on Thursday to $ 1,817.64 per troy ounce (31.1 grams), but later calmed down a bit and on Friday was even just below $ 1,800 at times.

    In addition to the inflation target, there are numerous aspects of the new ECB strategy that could also affect investors. "The most far-reaching decision is certainly the ECB's decision not to just talk about climate protection, but to draw up an ambitious plan of action," said Ulrike Kastens from the DWS fund company. "The portfolio of corporate bonds of the ECB will also be affected - the announcement alone could spark a signal effect."