MNI PREVIEW: ECB To Outline Strategy Review, Policy On Hold

By Luke Heighton

     FRANKFURT(MNI) - The European Central Bank is expected to provide an update

on its review of its monetary policy strategy after an otherwise uneventful

policy meeting on Jan. 23, giving a clearer indication of its framework, timing

and possible consultation mechanism.

     While details may be thin on the ground, ECB President Christine Lagarde is

likely to stress the importance of listening to stakeholder voices in the

review, which will examine the scope of the ECB's mandate, definition of price

stability, choice of inflation measures, voting methods, transparency and

communication. Announced in December, the review should be complete before the

end of 2020.

     The launch of the ECB's first comprehensive self-assessment since 2003 has

been greeted positively by Governing Council members - especially those who felt

overlooked by former President Mario Draghi.

     Debate appears to be settling around whether to opt for a symmetric

inflation target of 2%, or 2% with a limited but clearly stated tolerance band.

Under Draghi, the Governing Council's statement asserted a commitment to

inflation symmetry, but not all members agreed that this was implied by the

current target of inflation of close to, but below, 2% over the medium term.

     --CLIMATE CHANGE

     Lagarde may be asked about whether the eurozone's harmonised inflation

measure, HICP, should be revised to better include housing markets. Subjects

which could come up at the press conference include that of whether to formalise

the Council's voting process, in addition to publishing vote tallies or details

of individual votes in an expanded version of the meeting accounts, along the

lines of minutes provided by other central banks.

     Some officials are sceptical of Lagarde's suggestion that the ECB could

play a role in financing measures to mitigate climate change, with concerns

regarding its legality and effectiveness, as well as the danger of mission

creep, sources at the central bank have told MNI.

     The ECB is almost certain to leave interest rates and its bond-buying

programme unchanged at the meeting.

     Incoming data has done little to suggest it will revise its view that the

growth dynamic remains weak, with signs of stabilisation balanced by mild

underlying inflation pressures. With Germany's manufacturing sector continuing

to suffer, the ECB will probably echo December's assertion that risks remain

tilted to the downside, despite having become "somewhat less pronounced."

Support has been provided by a resilient service sector, employment growth and

increasing wages.

     Focus may also fall on Lagarde herself and her evolving communication

style, despite her previous injunction not to "over-interpret," "second-guess,"

or "cross-reference." The self-professed "wise owl" has so far maintained her

views on major policy issues in reserve.

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

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