Villeroy Says Credible Inflation Goal to be Heart of ECB Review

The European Central Bank’s review of how it conducts monetary policy will focus on pursuing a credible and symmetrical goal for price growth, according to Governing Council member Francois Villeroy de Galhau.

“It is essential to have an inflation target,” he said on Thursday evening in Paris, hours after the U.S. Federal Reserve revamped its own monetary-policy strategy. “I won’t say what form it will take for us, I won’t anticipate the result. But you can be reassured that a credible and symmetrical inflation objective will remain at the heart of our action.”

Fed Chair Jerome Powell earlier unveiled a new approach to setting monetary policy that will likely keep interest rates in the U.S. low for years to come. Speaking at a virtual symposium, normally hosted in Jackson Hole, Wyoming, he said the Fed will seek inflation that averages 2% over time, allowing for inflation to overshoot after periods of weakness.

Villeroy said Powell’s speech was “important” for long-term strategy. The ECB is also in the midst of a strategy review that could change the way it defines its mandate of maintaining price stability. For years, it has undershot its goal of keeping inflation “below, but close to, just below 2%.”

Reviving Inflation

Reigniting price pressures could be even more difficult going forward as the euro-area economy feels its way out of its deepest economic shock in decades. The central bank has introduced unprecedented stimulus to stabilize financial markets during the pandemic and ensure credit keeps flowing to the region’s companies, as well as counter downside risks to inflation.

ECB chief economist Philip Lane, speaking at the same symposium as Powell, reiterated the central bank’s commitment to adjust policy as needed to get inflation back on track.

“The monetary policy challenge consists of two stages,” he said. “Once the negative shock has been sufficiently offset, the second stage is to ensure that the post-pandemic monetary-policy stance is appropriately calibrated in order to ensure timely convergence to our medium-term inflation aim.”

He also said the current crisis will play a key role in the ECB’s self-evaluation as “the emerging lessons from the policy response to the pandemic shock” feed into the review.

©2020 Bloomberg L.P.

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