ECB to Hold Special Strategy Meeting Next Week, Omfif Says

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European Central Bank policy makers will hold a special meeting in Frankfurt next week in a bid to wrap up the institution's strategy review, according to Omfif.

The gathering is expected to put the finishing touches on a new definition of price stability, wrote David Marsh, chairman of the the Official Monetary and Financial Institutions Forum, a think tank for economic policy.

The meeting is expected to start with a Governing Council dinner on Tuesday and could extend through Thursday, Marsh wrote, adding that an announcement may be made afterward if agreement can be reached.

An ECB spokesman said the institution has planned several meetings that might be held in person if health and safety regulations allow, while declining to comment directly on the Omfif report.

The strategy review has been running since early 2020, though it was disrupted by the pandemic, and is studying a broad range of topics such as inflation, employment, climate change and fiscal policy.

There's broad consensus that the current inflation target of “below, but close to, 2%” should change, but disagreement on what should replace it. Some favor a precise goal of 2% with flexibility to reach it, and some -- especially from southern Europe -- want an explicit pledge to tolerate higher rates after shortfalls.

Symmetry Support

Bundesbank President Jens Weidmann said late Thursday he supports “an explicitly symmetric formulation of our policy goal on an inflation rate of 2% over the medium term” -- but that he's not convinced by average inflation targeting.

Average inflation targeting has been adopted by the Federal Reserve, and allows for looser monetary policy to let price growth run above the goal to make up for previous undershoots. Weidmann said it could be interpreted as keeping interest rates low so that governments can afford their debt burdens, which could undermine credibility.

“To keep still when the inflation rate exceeds the target over the medium term could be misunderstood as an expression of fiscal dominance,” he said.

ECB INSIGHT: Strategy Review May Signal Looser Monetary Policy

The meeting next week would come on the heels of a recent retreat by the 25-member Governing Council near Frankfurt. Officials made “good progress” there in shaping the institution's future monetary policy, President Christine Lagarde said last month.

The discussion, while not a formal monetary policy meeting, may also shape the ECB's plans for when and how to exit the emergency measures it deployed during the pandemic. Its 1.85 trillion-euro ($2.19 trillion) bond-buying program is currently set to run at least until March 2022.

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