ECB Puts Off Proposal to Outline Policy Guidance This Week

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European Central Bank policy makers rejected a proposal to clarify when and under which circumstances they might be ready to tighten monetary policy following changes to their inflation goal, according to officials familiar with the debate at meetings this week.

Several parts of the ECB’s guidance on future interest rates and asset purchases are tied to progress in lifting inflation to the institution’s now out-of-date goal of just-under 2%.

That language will need to change at the July 22 policy meeting to reflect the new 2% target and a strategy that could see prices temporarily growing even faster.

Governing Council members were presented with a proposal when they were working to conclude their strategy review. The idea was quickly shelved amid concerns that such an announcement would divert attention from the outcome of the review, said the officials, who asked not to be identified because the deliberations were private.

The issue didn’t make it to Wednesday’s formal Governing Council meeting and was never officially discussed.

An ECB spokesman declined to comment.

At its June policy meeting, the ECB reaffirmed its pledge to keep its key interest rates at current record lows or lower “until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon.”

Bond purchases under the ECB’s asset-purchase program -- which pre-dates the emergency program implemented during the pandemic -- are set to continue until just before the first rate hike.

The ECB’s strategy review wasn’t expected to end until September, and its unexpectedly early conclusion opens the prospect that economists and investors might receive some insights into policy makers’ plans to unwind pandemic stimulus just two weeks from now.

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