Staff of Reuters 4 minutes Reuters (Reuters) – On Thursday, the European Central Bank released the results of its strategy review and climate change policy. FILE PHOTO: Christine Lagarde, President of the European Central Bank (ECB), in Frankfurt, Germany, on March 12, 2020. Kai Pfaffenbach/Kai Pfaffenbach/Kai Pfaffenbach/Kai Pfa The following are the most important points. INFLATION- Over the medium term, a new strategy sets a symmetric 2 percent inflation target- The Governing Council affirms that the Harmonised Index of Consumer Prices (HICP) is a suitable pricing measure and advises that owner-occupied homes be included in the HICP over time. 2% – NO MORE ‘CLOSE TO BUT BELOW'”The Governing Council believes that maintaining price stability over the medium term is best achieved by aiming for a 2% inflation objective. This aim is symmetric, which means that both negative and positive departures from the target are undesirable.” INTEREST RATES REMAIN THE MOST IMPORTANT FACTOR, FOLLOWED BY THE ‘TOOLKIT'” The Governing Council also underlined that the ECB’s interest rate policy remains the principal tool for monetary policy. Other tools, like as forward guidance, asset purchases, and longer-term refinancing operations, that have helped ease the constraints imposed by the lower bound on nominal interest rates over the past decade will remain part of the ECB’s toolkit and will be used as needed. “OWNER-OCCUPIED HOUSING”The Governing Council (…) recognizes that include costs connected to owner-occupied housing in the HICP will better depict inflation important to households and that this is a multi-year endeavor.” In the meantime, to enhance its set of broader inflation indicators, the Governing Council will consider inflation measures that incorporate initial estimates of the cost of owner-occupied housing in its monetary policy evaluations.” CLIMATE CHANGE- The European Central Bank’s Governing Council has stated that it is dedicated to increasing its analytical capability in macroeconomic modeling, statistics, and monetary policy in relation to climate change. – Climate change will be considered in monetary policy operations in the areas of disclosure, risk assessment, collateral framework, and corporate sector asset acquisitions, according to the bank. – It will also carry out its action plan in accordance with the progress of broader EU regulations and activities on environmental sustainability disclosure and reporting. MACRO MODELLING “The ECB will speed up the development of new models and conduct theoretical and empirical analyses to track the effects of climate change and related policies on the economy, the financial system, and the transmission of monetary policy to households and businesses through financial markets and the banking system.” STATISTICAL DATA”The European Central Bank (ECB) will establish new experimental indicators encompassing important green financial instruments, financial institutions’ carbon footprints, and their exposures to climate-related physical risks. Starting in 2022, such indicators will be gradually improved in accordance with developments on EU regulations and efforts in the field of environmental sustainability disclosure and reporting.” DISCLOSURE”The ECB will establish private sector asset disclosure rules as a new eligibility criterion or as the basis for differentiated treatment of collateral and asset purchases. These requirements will take into account EU policies and initiatives in the area of environmental sustainability disclosure and reporting, promoting more consistent disclosure practices in the market while maintaining proportionality through adjusted requirements for small and medium-sized businesses. In 2022, the ECB will publish a complete plan.” Hugh Lawson compiled this list./n
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