MNI BRIEF: Pay More Attention To ECB Scenarios - Schnabel

The European Central Bank alternative scenarios and sensitivity analysis are “currently not receiving “the weight and attention they deserve among central bank watchers, with most focusing narrowly on the point forecast of inflation two to three years ahead,” ECB executive board member Isabel Schnabel said in a speech on Wednesday.

Arguing that central banks should evaluate the risk of returning to pre-pandemic policy frameworks, “which relied heavily on central banks adjusting and communicating policy around a central inflation forecast,” she defended the use of alternative scenarios ahead of other tools such as the dot plot.

Alternative scenarios could help central banks deal with uncertainty and “contribute to making policy decisions more robust by considering a range of plausible outcomes,” she said, adding that central forecasts face risks from supply shocks and macroeconomic volatility. (See MNI SOURCES: ECB Still Divided Over Guidance As It Nears Cuts)