European Central Bank Update

Sign up for myFT Daily Digest and be the first to learn about the ECB news.

Opponents of the European Central Bank’s Council disagree with its new guidance on future policy paths because they fear that it underestimates the risk of rising inflation. summary Its latest policy meeting.

The European Central Bank issued revised forward-looking guidance last month to incorporate its findings Strategic review, Which changed its main policy goal to make it more tolerant of inflation above the target.

The new wording states Interest rates will not rise Until the European Central Bank predicts that inflation will reach the 2% target of its forecast range “far ahead”, and only if there is sufficient evidence that the rate of price growth will continue to be “sustainable”, the policy rate will be raised. It also pointed out that not only the overall inflation rate, but also the potential inflation rate should be moving in the direction of 2%.

The minutes of the ECB’s monetary policy meeting released from July 21 to 22 show that although the “overwhelming majority” of board members supported the revised guidelines, “a few members maintained their reservations because the revised statement did not Fully address their concerns” Thursday.

Some policy makers Worry about the wording “implying the possibility and continuity of overshooting” and “committing to maintain interest rates at current or lower levels for a long period of time without clear exemption clauses.”

They warned that requiring inflation not to fall below the target “actually amounts to deliberate overshoot”, which is inconsistent with the new strategy of the European Central Bank.

The guidelines will be tested at the European Central Bank’s interest rate setting meeting next month, when it is widely expected that policymakers will discuss when Start to shrink Their emergency bond purchases during the pandemic.

Capital Economics chief European economist Andrew Kenningham said that the minutes of the July meeting indicated that “the central bank is more likely to agree on when and how to scale back its pandemic emergency purchase plan before December.”

Carsten Brzeski, global head of macroeconomics at ING Bank, said that the minutes of the meeting showed that last month “the only thing the European Central Bank considered was new forward-looking guidance, not a gradual reduction.”

“Although [US Federal Reserve] It is currently investigating when and how to start downsizing, and the European Central Bank does not seem to be in a hurry to change its course,” he said.

The minutes of the meeting show that this is mainly because policy makers believe that the recent rise in inflation is “mainly temporary.”

Although the Eurozone inflation rate is expected to rise to more than 2% later this year, after many years of falling below the European Central Bank’s target, the central bank expects the inflation rate to fall again next year. At the July meeting, policymakers cited “significant economic weakness, weak wage growth, and past appreciation of the euro” as reasons “potential price pressures may remain low for some time”.

However, Frederik Ducrozet, a strategist at Baida Wealth Management, pointed out that “for the first time since the financial crisis, there are some early signs of concerns about the upside risks to the medium-term inflation outlook.”