MNI SOURCES: ECB Policy Framework Review Likely After Draghi

     LONDON (MNI) - A review of the European Central Bank's monetary policy

framework is likely to start under the institution's next president, ECB

officials told MNI, although such an exercise may only take place if economic

conditions are relatively stable.

     "It doesn't make sense to have that debate until Mario Draghi's successor

is in place," said one source. "It is going to have to take place at some stage,

but it is a long-term issue."

     Another official stressed that if economic conditions deteriorated the

chances of a review, possibly including consideration of tools such as

price-level targeting, would be minimal.

     "It hasn't been discussed up to now. Mario has always resisted such

attempts, wherever they came from. At a strategic level, that might be a

discussion for the new president, once in office, to start," the source said,

adding: "Only under more or less normal market conditions, and if monetary

policy is not under stress, would this be put on the table. Perhaps next year,

if the situation doesn't worsen more than what is forecasted at the moment, then

something like this could be started, but it would take at least six months, if

not longer."

     The call for a rethink of the ECB's framework, made by the Bank of

Finland's Oli Rehn, comes as the Federal Reserve embarks on a similar exercise

and as existing tools have failed for years to raise eurozone inflation towards

the central bank's target.

     At his April press conference, President Draghi said in response to a

question from MNI that the ECB would have to see what came out of the Fed's

review and that any examination of the monetary policy framework would require

more than one or two meetings and could take several months. At a briefing in

Washington April 13, Draghi had said that changing an inflation target due to

failure to achieve it would undermine the ECB's credibility.

     Some ECB officials had placed their hopes for higher inflation on a surge

in oil prices, but, when this came, it failed to feed through to CPI as much as

they had anticipated, the second official said.

     Even the possibility of restarting quantitative easing, something which

officials acknowledge could be considered in a sharp downturn, may have limited

effect, only boosting GDP by 0.2% if used on a large scale, one source said.

     Preliminary talks on a policy review could start within months, the third

official said, although another was more cautious. A review of the ECB's

monetary policy strategy "is something I would expect a new president to start,

or could start. But it definitely takes more time than Mario Draghi has left in

office."

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

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