ECB failed to agree on new guidance, to revisit July 22 – sources

2 Minutes by Reuters Staff Read FILE PHOTO: The European Central Bank’s (ECB) headquarters in Frankfurt, Germany, on July 8, 2020. REUTERS/File Photo/Ralph Orlowski Reuters – FRANKFURT (Reuters) – When officials finalized the conclusion of a wide strategy review on Thursday, they were unable to agree on a new policy direction and will revisit the matter on July 22, according to three sources familiar with the conversation. The European Central Bank (ECB) announced a new inflation target and a role in combating climate change on Thursday, signaling a potentially significant shift in how it sets policy. While policymakers unanimously agreed on the review’s results, they couldn’t agree on what this meant for policy in the medium term, especially how the bank’s so-called “forward guidance” should be changed. The ECB uses this guidance to set long-term expectations among investors by specifying the conditions under which asset purchases would halt or interest rates would rise. According to the sources, a significant number of policymakers on the ECB’s 25-member Governing Council believe the new strategy necessitates a more persistent policy of monetary accommodation, which must be reflected in forward guidance to signal to markets that the ECB will continue to support the economy. A spokesman for the European Central Bank declined to comment. Others, however, contended that because the review is not a policy meeting, policy choices should not be made there. Some also argued that any significant change in the guidance would raise rather than lower inflation, arguing that the new, symmetrical 2 percent inflation target is not significantly different from the bank’s previous target, and that including housing costs would actually raise rather than lower inflation. Balazs Koranyi contributed reporting, and Chizu Nomiyama edited the piece./nRead More