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ECB to change policy guidance at next meeting

ECB President Christine Lagarde said in an interview that the European Central Bank will change its guidance on the next policy steps at its next meeting to reflect its new strategy. This shows it is serious about reviving inflation. The ECB’s new strategy allows it to tolerate inflation higher than its 2% goal when rates are near rock bottom, such as now.

This is meant to reassure investors that policy won’t be tightened prematurely. It boosts their expectations about future price growth, which has lagged below the ECB’s target for most of the past decade. Lagarde told Bloomberg TV that the given the persistence that they need to demonstrate to deliver on their commitment, forward guidance will certainly be revisited. The ECB’s current guidance says that it will buy bonds for as long as necessary and keep interest rates at their current, record-low levels. This is until it has seen the inflation outlook robustly converge to its goal.

Lagarde did not elaborate on how that message might change. She simply said that the ECB’s aim will be to keep credit easy. She added that her sense is that they will continue to be determined by maintaining favorable financing conditions in their economy. The she even added this was not the right time to talk about dialing back stimulus and that the ECB’s Pandemic Emergency Purchase Program, which is worth up to 1.85 trillion euros, could transition into a new format after March 2022.

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