ECB’s Lane: ECB Strategy Review Delayed, But Still High Priority

22 May 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank’s review of its monetary policy strategy, delayed by the pandemic, nonetheless continues to be of high priority for the bank, ECB Executive Board member Philip Lane said Friday.

Speaking at the Inflation: Drivers and Dynamics 2020 Online Conference of the Federal Reserve Bank of Cleveland and the ECB, Lane, who is also Chief Economist of the ECB, chiefly discussed the roles of common shocks, structural change and monetary policy in the high correlation of inflation across countries, according to a text of the speech provided by the ECB.

“The challenge for central banks is to ensure that monetary policy strategies successfully protect the medium-term inflation aim by ensuring that the economic and financial assessments that inform policy decisions successfully diagnose the nature of the underlying shocks driving the inflation outlook”, he said.

Forces affecting economies’ basic structure and how wages and prices are determined mustn’t be assumed to continue along a given trend, he cautioned. Indeed, some that caused inflation rates across countries to track each other in recent decades may exert the opposite effect in the future, he said.

“These strategic challenges are especially acute under conditions of low inflation and low interest rates, since deviations from the medium-term inflation aim are likely to be more persistent under such conditions,” he said. “Accordingly, our monetary policy strategy review – even if it is unavoidably delayed by the COVID-19 pandemic – remains a high priority for the ECB.”

The ECB in early April deferred the conclusion of its strategy review from the end of 2020 to mid-2021. The launch of the review had been announced on January 23, at which time the ECB indicated that the scope of the review would focus on “quantitative formulation of price stability, monetary policy toolkit, economic and monetary analyses and communication practices,” while financial stability, employment and environmental sustainability would also be part of it.