3 Minutes to Read Reuters – FRANKFURT (Reuters) – On Thursday, the European Central Bank will release the results of an 18-month strategy review, clarifying a muddled inflation objective and laying out what role it may play in the battle against climate change. The European Central Bank’s (ECB) headquarters in Frankfurt, Germany, on March 12, 2016. REUTERS/File Photo/Kai Pfaffenbach Since taking over from Mario Draghi in late 2019, ECB President Christine Lagarde has made it one of her top goals to conduct the central bank’s first strategic review since 2003. Its findings could mark the beginning of the most significant reform of the tremendously powerful but still relatively young institution that dictates monetary policy for the eurozone’s 19 countries. The bank is expected to set its inflation objective at 2%, abandoning its current formula of “below but close to 2 percent,” which has given the appearance that it is more concerned about price rise beyond the target than below it. It’s also conceivable that the aim will be deemed symmetric. Investors will be looking for signals as to whether the ECB will be willing to let inflation soar following periods of low price rise after nearly a decade of undershooting its current target. They’ll also be watching to see if the ECB, like the Federal Reserve in the United States, would aim average inflation over time to compensate for lost price growth. Investors are likely to interpret an explicit reference to allowing an inflation overshoot as a pledge to keep monetary policy ultra-easy for an even longer period, and as a guarantee that 2 percent is not a cap, as it is currently viewed. However, such a move could be politically perilous, especially among inflation-conscious Germans, and Bundesbank President Jens Weidmann has long been opposed to it. The ECB is also expected to state that its inflation methodology needs to be revised to reflect owner-occupied housing expenses (OOH). However, those are monitored by Eurostat, the European Union’s statistics agency, and any adjustment is likely to take years because it would necessitate changes in how some nations gather data. In the current low-interest-rate environment, OOH might raise headline inflation by 0.2-0.3 percentage points, according to economists. The ECB appears almost set to utilize its bank supervision arm to compel corporations to provide more climate-related disclosures. Raising collateral requirements for polluting companies or skewing asset purchases toward climate targets have also been discussed, although these appear to be creating more disagreement among the Governing Council’s 25 members. The ECB will release the review’s findings at 1100 GMT, followed by a press conference by Lagarde at 1230 GMT. Balazs Koranyi contributed reporting, and Catherine Evans edited the piece./n
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