O European central bank must promise on Thursday a longer period of stimulus to fulfill the commitment to boost the inflation, but the debate among monetary policy makers must be tense and no new measures will be announced.
The Governing Council will meet for the first time since the institution unveiled an adjusted inflation target earlier this month, as part of a broader 18-month strategic review process of its roles in a range of areas, from inflation to changes climate.
Among the findings, the ECB said longer periods of ultra-low inflation, like the current one, require especially strong or persistent support — an ambiguous formulation that is proving difficult to translate into real policy.
Members of the body discussed earlier this month how to adapt the policy guidance to fit that commitment and ended up putting off making any changes in order to maintain unanimous support for the ambitious new strategy document.
The same differences are expected to resurface on Thursday and conservative monetary authorities such as Bundesbank head Jens Weidmann are unlikely to budge, and ECB head Christine Lagarde will then have to seek a common understanding or renounce her desire for unanimity. .
This future guidance is vital as it will signal the ECB’s approach to key decisions to be taken at upcoming meetings, including how to close its €1.85 trillion pandemic support package and whether, in the process, it should step up further support measures. traditional ones.
At the heart of the debate is whether the ECB should try to push inflation temporarily above its 2% target, a politically risky exercise for Germans worried about inflation and already skeptical of the ECB’s stimulus efforts.
Signaling a potential commitment, Isabel Schnabel, a member of the ECB board, argued that real growth in consumer prices — not just expectations — would need to accelerate before the ECB tightens policy, and that excesses in inflation would signal of patience rather than a goal.
“The higher inflation outlook needs to be visibly reflected in real underlying inflation dynamics before securing a more fundamental reassessment of the medium-term inflation outlook,” Schnabel, who is German, said this month.
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