Frankfurt-based European Central Bank (ECB) yesterday decided to revise its inflation target and allow consumer prices to overshoot if necessary. The bank initiated its first policy review since 2003 in January last year. However, its outcome had to be postponed amid the coronavirus pandemic. The idea has been to assess how to adapt ECB policies and tools to achieve its main goal of price stability.
ECB present target is an inflation level of ‘below, but close to, 2 per cent’. Moving forward, the official inflation goal will become 2 per cent with overshoots allowed.The European Central Bank has decided to revise its inflation target and allow consumer prices to overshoot if necessary. The bank initiated its first policy review since 2003 in January 2020. However, its outcome had to be postponed amid the pandemic.The idea has been to assess how to adapt its policies and tools to achieve its main goal of price stability.#
“The governing council considers that price stability is best maintained by aiming for a 2 per cent inflation target over the medium term. This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable,” ECB said in a statement.
ECB president Christine Lagarde told a press conference that the new inflation target is ‘clear and easy to communicate’, global newswires reported.
“We know that 2 per cent is not going to be constantly on target, there might be some moderate, temporary deviation in either direction of that 2 per cent and that is okay. What we are very concerned about is any sustainable, durable, significant deviation from the target and that will require forceful action,” she said.
The first regular monetary policy meeting of the governing council applying this new strategy will be held on July 22. There would be a new policy review in 2025, Lagarde added.
In forecasts released in June, ECB had said inflation could reach 1.9 per cent by the end of the year. However, it still believes these price increases are temporary and inflation will remain below 2 per cent over the foreseeable future.
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