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

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