Staff of Reuters Read for 4 minutes (Reuters) – LONDON (Reuters) – After an 18-month strategy review, the European Central Bank announced a new inflation target on Thursday, trying to enhance its credibility after undershooting its current target for nearly a decade. A shopper in a market in Nice, France, pays with a euro bank note on April 3, 2019. Eric Gaillard/Reuters It also stated it would incorporate climate change considerations into its monetary policy further, the latest in a string of moves by the world’s major central banks to accept that their policies must take climate change into account. Following are some investor and analyst reactions to the ECB’s strategy review announcement: CHRISTOPH RIEGER, COMMERZBANK, FRANKFURT, HEAD OF RATES AND CREDIT RESEARCH “The ECB’s willingness to tolerate higher inflation is deeply ingrained in its thinking. “There is a justification for them to act firmly against low-inflation threats that they perceive emerge,” they say. When you combine this with some of the other recent color from the ECB, it’s clear that it’s committed to keeping policy slack and allowing inflation to establish itself at higher levels. “The bottom line is that real yields have reached all-time lows and will continue to do so.” JEFFERIES, LONDON, MARCHEL ALEXANDROVICH, EUROPEAN FINANCIAL ECONOMIST “They’re placing a lot of emphasis on greening monetary policy, which we predicted would happen.” Lagarde has been talking about the symmetry point for quite some time. “The inclusion of housing prices into the HICP index – the question for me is how much weight will it have, all other things being equal.” This is a potentially significant shift, although it does not appear to have an immediate influence on policy.” When it comes to corporate bond QE, they will assess how corporations are dealing with climate change. If there is corporate QE, those companies that do not make the necessary modifications may be excluded. There are a lot of unknowns, and we don’t have all the answers yet.” UNIVERSITY OF ST GALLEN ECONOMIST STEFAN LEGGE “To be honest, I’m not surprised by the ECB’s announcement. For a long time, it has been evident that rising inflation will not only be accepted, but actively pursued. It’s politically appealing because the gains come first, followed by the (huge) costs, which often emerge a decade later.” As is customary, we must be cautious in our language. First, while the mechanism for assessing inflation will be changed, the price impact of loose monetary policy will most likely be understated.” Second, what the ECB (and the Fed) refer to as’symmetric’ will very certainly be asymmetric: a time of inflation undershooting 2% will be used to justify expansionary monetary policy, while a period of inflation overshooting 2% will almost certainly be followed by restrictive policy. “Who believes the ECB will pursue a tightening policy in 2024 or 2025, when inflation was above target in 2021-2023?” What time period should the average rate of inflation be determined over, and how many years do you consider the medium term?” NATIXIS HEAD OF EUROPEAN MACRO RESEARCH, DIRK SCHUMACHER “The most interesting component is the inflation target.” While a make-up plan, which compensates for inflation undershoots or overshoots, has some theoretical appeal, it is difficult, and Fed simulations have shown that it would not help much. “As a result, they ultimately decided not to pursue it, which was to be expected.” The Global Finance & Markets Breaking News team compiled this story; Peter Graff edited it./n
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