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The European Central Bank will adjust its forward guidance in line with its revised symmetrical inflation-targeting strategy on Thursday, though some Governing Council members may resist further significant modifications.
The ECB could state its willingness to tolerate a moderate, transitory overshoot of its new 2% target, which replaces the old objective "close to, but below, 2%". While its current guidance already commits it to leaving key interest rates unchanged until inflation "robustly" converges close to its objective, its new formulation could also take on Isabel Schnabel's call for underlying inflation dynamics to visibly reflect changes in the medium-term outlook.
The spread of the delta variant of Covid-19 will play into the fears of those worried by the strength of recovery, and it would not be a surprise to see the words "forceful" and "persistent" appear in the introductory statement, in line with the recent strategy review.
FUTURE OF PEPP
No other major changes to policy settings are expected, although President Christine Lagarde has previously been able to steer consensus towards dovish positions. Most Governing Council members consider it too early to formally consider what will happen after the EUR1.85 trillion Pandemic Emergency Purchase Programme concludes its active phase in March, though officials have indicated to MNI that asset purchases will continue flexibly and at an elevated level.
That debate is set to hot up with the arrival of September's official growth and inflation projections - though Chief Economist Philip Lane himself has said that even then may be too early.
The Council is likely to reaffirm it will maintain net purchases under the PEPP at a significantly higher pace than during the first months of the year, subject to market conditions. A feature of recent statements has been a reference to the importance and success of Targeted Longer-Term Refinancing Operations, and July's decision is likely to continue the trend, possibly combined with an emphasis on the importance of maintaining a carefully calibrated policy mix.
The new statement will also be expressed simpler, more direct language, designed to make the ECB more accessible, but posing an additional challenge to the expression of policy nuance.