MNI POLICY: ECB Review To Focus On Inflation Target, Toolkit

By Luke Heighton

     FRANKFURT (MNI) - The ECB's review of monetary policy strategy will focus

on the definition of price stability, the monetary policy toolkit, economic and

monetary analysis and communication, it said.

     Central bank measures to mitigate climate change will be assessed alongside

financial stability and employment as "considerations" that "can be relevant in

pursuing the ECB's mandate."

     The review will be based on "thorough analysis and open minds, engaging

with all stakeholders" an ECB statement said, and is expected to be concluded by

the end of 2020.

     "Addressing low inflation is different from the historical challenge of

addressing high inflation. The threat to environmental sustainability, rapid

digitalisation, globalisation and evolving financial structures have further

transformed the environment in which monetary policy operates, including the

dynamics of inflation.

     "The Governing Council will take stock of how the monetary policy strategy

has supported the fulfilment of the ECB's mandate under the Treaty over the

years and consider whether any elements of the strategy need to be adjusted," it

continued.

     The review will consider the quantitative formulation of price stability,

"together with the approaches and instruments by which price stability is

achieved." The review will also take into account how financial stability,

employment and environmental sustainability can be relevant in pursuing the

ECB's mandate.

     "The Governing Council will review the effectiveness and the potential side

effects of the monetary policy toolkit developed over the past decade. It will

examine how the economic and monetary analyses through which the ECB assesses

the risks to price stability should be updated, also in view of ongoing and new

trends. Finally, it will review its communication practices."

     No further details were given, though President Christine Lagarde did

indicate in the press conference following the Governing Council's January

meeting that the possible effects of climate change are already being considered

in ECB staff macroeconomic models.

     She denied that ECB monetary policy was effectively on hold until the end

of the year, and said the Governing Council would continue to monitor and if

necessary respond to the economic situation.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$]