ECB Review Begins With Heated Debate on Inflation 

(Bloomberg) --

The European Central Bank’s strategic review has already featured an intense debate about potential changes to the inflation goal, with views aired publicly highlighting key areas of disagreement.

Policy makers discussed at a meeting last week how much flexibility they should allow if price growth misses or exceeds their target, Austria’s Governing Council member Robert Holzmann said on Wednesday. While he predicted the ECB will probably set its goal at 2%, his Irish colleague Gabriel Makhlouf was arguing just hours later that a range might be more credible.

Their comments are an early glimpse into deliberations likely to consume the Governing Council for the rest of year. Most officials have described the ECB’s efforts so far mostly as a stocktaking exercise.

“Should it be less, should it be more, should it be symmetrical, should it be asymmetrical?” Holzmann told a panel in Vienna. “Last week, we had heated discussions about this in the council.”

Redefining the ECB’s inflation goal is the centerpiece of the strategy review President Christine Lagarde started last month. The Governing Council has been struggling to reach its current target of below, but close to, 2% for the better part of a decade despite unconventional stimulus measures including negative interest rates and quantitative easing.

Some policy makers have argued the ECB should settle on a clear goal and stress its commitment to give equal weight to inflation falling short and overshooting it. Others, such as Dutch governor Klaas Knot, believe the central bank should adopt a tolerance band. Holzmann argued in the past the aim should be lowered to around 1.5%.

“It has been argued that since central banks are unlikely to hit a point target on a regular basis, having one makes it harder to explain policy to the public,” Makhlouf said in Berlin on Wednesday. “A range, with or without a focal point, may be more realistic and therefore provide the central bank with more credibility.”

The ECB plans to hold “listening events” in the coming months that will allow a range of actors to air their views on the central bank’s strategy.

Makhlouf said “central banks must listen to what the public has to say, and how their experiences are influencing their perception of monetary policy.”

“Various options for the interpretation of price stability will be considered in the review,” he said.

To contact the reporters on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net;Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Craig Stirling, Jana Randow

©2020 Bloomberg L.P.