ECB Insight: An Expanded Forecast Horizon, A Smaller Policy Role

26 November 2025

By David Barwick – FRANKFURT (Econostream) – The ECB will soon unveil its first staff projections for 2028, complete with a revised profile of the inflation impact of ETS 2. On paper, that should be a big moment: an extra year of forecast, a new carbon-price shock and an inflation target that is supposed to be symmetric. In practice, Governing Council members are working to make sure it is not.

This is not the first time we’ve commented on policymakers’ efforts at downplaying the significance of the upcoming projection round; almost a month ago, we already noted that they had wasted little time in “signaling that whatever the new horizon shows, it will not be decisive.”

In the weeks since, the same message keeps resurfacing: the projections are only one input; 2028 is too far away to take literally; ETS 2 is a one-off; and small or perhaps even mid-size misses around 2% are nothing to fret over.

Taken together, this is less a series of off-the-cuff remarks than a deliberate effort to pre-emptively downgrade the significance of any awkward-looking outcome in December – in particular a projected undershoot in the outer years – and so justify leaving rates unchanged.

Croatia’s Boris Vujčić was explicit about the ECB’s tolerance for deviations from target. “We should not try to micromanage inflation,” he told Börsen-Zeitung in an interview published on Tuesday. “If we don't see persistent pressure for inflation to come up or down, we should not change interest rates. Doing too much would just create unnecessary volatility. As I said, for the time being we are in a good place.”

That already recasts the 2% target as a band rather than a point. The symmetry is formally intact, but the operational focus shifts from the exact level of projected inflation to the perceived persistence of any deviation and the broader macro narrative.

When asked directly whether three straight years of sub-2% inflation in the projections would amount to a “persistent downward deviation”, he replied: “If you don't see large enough persistent deviation or an increasing downward trend, then it is fine. Thinking two or three years ahead, you always have increasing uncertainty. We better stick to the more visible future and make sure that the data we get is consistent with our projections. If they are, we are fine.”

The logic is subtle but important. A profile that, on its face, looks like an undershoot is redefined as “fine” as long as it is not part of an “increasing downward trend” and the nearer-term data behave. In other words, the further out the miss, the easier it becomes to declare it irrelevant.

Central Bank of Ireland Governor Gabriel Makhlouf makes a similar point in plainer language. The December projections were “just an input,” he said at a press conference last week. “There’s a whole bunch of other things that I think about first before I think about the projections.”

As for a small undershoot, he told Reuters later, “If the projections are at 1.8%, I'd be less worried about it.”

Bank of Greece Governor Yannis Stournaras went further, suggesting that the real trigger point is not the forecast but the actual outcome. Asked how big a projected undershoot could be tolerated without prompting a cut, he told MNI on November 5: “When it [actual inflation] starts becoming less than 2%, call me again.”

Taken literally, it amounts to a striking reinterpretation of a medium-term target that is supposed to guide preventive policy, not merely confirm it after the fact. But it fits with the emerging narrative: the projections should not be allowed to push the Council into “fine-tuning” – a word many policymakers now use almost defensively.

National Bank of Slovakia Governor Peter Kažimír gave the cleanest version of this line. In a period of extraordinary uncertainty, he argued in a blog post on November 3, the ECB “should not try to overengineer our policy and fine-tune inflation dynamics to perfection with small moves”. Otherwise, he warned, the central bank itself risks becoming “a source of volatility rather than the pillar of stability our economy needs.”

He was echoed by Central Bank of Malta Governor Edward Scicluna, who essentially suggested that the ECB should not let itself be goaded into action and characterized a rate move as playing with fire. “If we’re close to the 2% target, why mess up?” he told a conference on November 11. “If it ain’t broke, don’t fix it.”

As discussed previously, comments by Latvian central bank Governor Martins Kazāks fit the mold perfectly, with his refusal to “overestimate the importance” of the 2028 forecast and his underscoring of the projections’ “very large margin of error.”

The common denominator is clear. The December exercise matters, but only up to a point, and certainly not enough to force a rate move on the basis of – at least – a modest miss in 2028.

The same downplaying is visible in the way the ETS 2 impact is being framed.

Vujčić treats it as a textbook case of something the ECB should largely ignore: “If not too large, this is an example of something that has a one-time effect on inflation,” he said. “If it is not too large and therefore does not propagate into further price increases, I think we should not make too much out it.”

Makhlouf similarly urged against getting “too obsessed about what might or might not happen with ETS 2.”

Austrian National Bank Governor Martin Kocher, asked in an Econostream interview directly about the new scheme, called it a “one-time inflationary effect for one year” that then drops out unless costs keep rising.

He allowed that it is “important to discuss and understand very well these effects,” but immediately downscaled the stakes: “[A]ny resulting deviation from our target should be mild. I would not be too concerned if we're one or two tenths of a point above or below; that's normal. You cannot, of course, expect to always hit the target exactly.”

Stournaras has been similarly relaxed. Any mitigation or delay in ETS 2 implementation is “unlikely to be large enough to change the picture”, he argued, again because the impact is a one-off.

President Christine Lagarde has framed the issue in a similar way, emphasizing that ETS 2 has been in the projections “since 2024”, that colleagues in the Commission are still committed to it and that what is being contemplated is a “slight smoothing in the implementation”, with “a bit less in 2027 and a bit more in 2028.” The implication is that the total effect is unchanged and that any profile shift is detail rather than substance.

The collective effect of these remarks is to pre-empt the idea that ETS 2 could force a policy debate. Whether the new scheme boosts projected inflation in 2027 or 2028, or is delayed, is portrayed as a minor technical adjustment that does not impinge on the medium-term orientation of policy.

The pattern across these comments is too consistent to be accidental. What looks like caution in isolation reads like strategy in the aggregate.

The Council knows that the December projections, with a first look at 2028, will be read as a test of the commitment to symmetry for which it previously congratulated itself. It also knows that some plausible combinations of input assumptions – slower growth, only gradually fading energy support, a smoother ETS 2 profile – could easily generate a medium-term path that dips below 2%, at least on a simple reading.

By repeatedly reminding audiences that:

– projections are “just an input”;
– the outer year is subject to “increasing uncertainty”;
– small misses such as 1.8% are “less” worrying;
– ETS 2 is a one-off whose importance should not be overstated; and
– the ECB should not “micromanage” or “overengineer” inflation,

policymakers are constructing an interpretive framework in advance. Within that framework, almost any December outcome short of a clear, persistent disinflation trend can be described as compatible with staying on hold.

Even the relatively dovishly inclined Bank of Lithuania Governor Gediminas Šimkus, who stands out by stressing how “very important” the 2028 projections will be, ultimately lands in the same place.

Deviations from 2% are, in his words from early this month, “marginal differences” rather than “fundamental” ones. That is hardly a platform for arguing that a small forecast undershoot should prompt an immediate push for further easing.

From a narrow policy-tactics perspective, the strategy is understandable. The ECB has just delivered a large easing cycle and inflation is indeed “around 2%”. Few Council members have an appetite to reopen the rate debate on the basis of a model-driven undershoot that lies three years away and is heavily conditioned on policy assumptions.

But there is a longer-term cost. The ECB spent years defining and defending a symmetric 2% target meant to anchor expectations and guide policy pre-emptively. If small projected misses are “fine,” if policy should stick to the “more visible future,” and if the trigger is actual rather than forecast inflation, symmetry risks becoming rhetorical rather than operational.

December’s new 2028 line will not, by itself, settle that question. What it will do is reveal how far the Governing Council is willing to stretch its own framework in order to preserve the apparently treasured option of doing nothing.

The recent effort to shrink the importance of both the projections and ETS 2 suggests that, when the forecasts arrive, much of the real work will already have been done in the narrative.