According to its President Christine Lagarde, the European Central Bank (ECB) will adjust its monetary policy outlook in the light of the changed strategy at the upcoming July interest rate meeting.
"There will be a review of forward guidance," Lagarde told Bloomberg TV in an interview broadcast Monday night.
Because this must be aligned with the strategy check that has just been completed.
"My feeling tells me that we will continue to align ourselves with maintaining favorable financing conditions in our economies," added Lagarde.
The ECB wants to support the economic recovery that is underway. "Yes, there will be some interesting variations and changes," she noted. “Forward guidance” is the monetary policy outlook of a central bank. At the ECB, it contains, among other things, statements on the likely end of the trillion dollar emergency bond purchases and information on the conditions under which key interest rates will rise again in the future. The next interest rate meeting is on July 22nd.
The Euro-Wächter announced the result of their 18-month long strategy check on Thursday.
One of the results is that they are now aiming for an inflation rate of two percent in the euro area in the medium term instead of below, but close to, two percent as before.
If interest rates are already ultra-low, inflation slightly above target can be tolerated temporarily.
It is not yet clear what the new inflation target will mean for the upcoming monetary policy steps.
Not yet the time for the exit debate
According to Lagarde, the time has not yet come to talk about withdrawing the monetary policy support that the monetary authorities have launched in the fight against the economic consequences of the corona crisis. "Now is not the time to talk about an exit strategy," she said. She expects the PEPP emergency bond purchase program, which is set to total EUR 1.85 trillion, to continue until at least March 2022. After March, it might change to a new format.
The Frenchwoman can count on the support of her compatriot Francois Villeroy de Galhau. According to him, following its latest strategy reform, the ECB now has the opportunity to adjust its monetary policy at upcoming interest rate meetings. The strategy is long-term, but monetary policy could be adapted at each of the corresponding ECB council meetings, said Villeroy on Sunday following the G20 meeting in Venice. Even if the ECB lets its pandemic bond purchase program expire in March as planned, monetary policy will remain very loose for as long as necessary. The ECB would have other unconventional measures at its disposal for this purpose.