European Central Bank (ECB) Governing Council today announced its new monetary policy strategy, the ECB’s press service informs.
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The Governing Council considers that price stability is best achieved through the setting of an inflation target of 2% over the medium term. This goal includes a symmetrical approach, which means that both negative and positive deviations from this goal are equally undesirable. When the economy is operating close to the floor of nominal interest rates, particularly determined or sustained monetary policy action is needed to prevent negative deviations from the inflation target from intensifying. It may also include a transition period during which inflation is slightly above the target.
The Governing Council also confirmed that the ECB’s interest rate package remains the primary instrument of monetary policy. Other instruments, such as outlook indicators, asset purchases and longer-term refinancing operations, which have helped to ease the constraints on nominal interest rates in recent years, will continue to be an integral part of the ECB’s toolbox and will be used as appropriate.
“I am pleased to announce that the Governing Council endorsed the ECB’s new monetary policy strategy yesterday. how to adapt our strategy: the new strategy provides a solid foundation that will help us to conduct our monetary policy in the years to come, “said Christine Lagarde, President of the ECB.
The Governing Council confirmed that the harmonized index of consumer prices (HICP) remains an appropriate indicator for assessing price stability. However, it recognizes that including the costs of owner-occupied housing in the HICP would better reflect household-specific inflation, and that the full inclusion of owner-occupied housing in the HICP will be a multi-year project. Until then, therefore, the Governing Council will take into account inflation rates in its monetary policy assessments, which include an initial assessment of the cost of owner-occupied housing, complementing a broader set of additional inflation indicators.
The Council recognized the importance of climate change for price stability and accordingly committed itself to an ambitious climate change action plan.
The first regular monetary policy meeting at which the Governing Council will apply the new strategy will take place on 22 July 2021. The Governing Council intends to periodically assess the adequacy of its monetary policy strategy. The next evaluation is expected in 2025.
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