Home Banking ECB to unveil tweaked inflation target, climate role

ECB to unveil tweaked inflation target, climate role

The European Central Bank will announce the outcome of an 18-month strategy review. This redefines its inflation target and laying down what role it plans to play in the fight against climate change. The first review of ECB since 2003 has been one of bank President Christine Lagarde’s priorities since she took over from Mario Draghi in late 2019.

In a move long flagged by policymakers, the bank is likely to set its inflation target at 2%. This has created the impression it worried more about price growth above the target than below it. The target is also likely to be declared symmetric. They will be looking to see if the ECB will follow its U.S. counterpart. This is in targeting average inflation over a period to make up for the lost price growth. This is an explicit reference for tolerating an inflation overshoot. It would be seen as an assurance that 2% is not a cap, as now perceived. But such a move could be politically risky. Mainly among inflation-way Germans, and Bundesbank chief Jens Weidmann has long opposed it.

On climate change, the ECB looks almost certain to use its bank supervision arm. And this is to force companies to make greater climate-related disclosures. Raising collateral requirements for polluting firms around climate goals have also been on the table. But this appears to be generating greater debate among the 25 members of the Governing Council. The ECB will announce the results of the review after the Lagarde news conference.

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