After an 18-month study, the European Central Bank (ECB) decided to change its inflation target from “below but close to 2 percent” to a 2 percent aim.
Christine Lagarde, the president of the European Central Bank, stated that the new plan was easier to express.
It is “a robust foundation that will guide us in the conduct of monetary policy in the years ahead,” she said, adding that ECB council members have always judged the inflation target to be “quite near to 2%” and that the adjustment was only minor.
“When the economy is functioning close to [zero] interest rates, it requires exceptionally forceful or sustained monetary policy action to avoid negative deviations from the inflation target being entrenched,” the ECB governing council said in a statement. This could potentially indicate a brief spell of considerably above-target inflation.”
Meanwhile, European inflation is likely to have dropped in June, according to numbers due out later this month.
Investors are also keeping a careful eye on the Delta covid variant’s spread, fearful that it could stifle local demand, international commerce, and put downward pressure on pricing.
The euro has gained ground today as a result of the increased inflation objective./n
