ECB sets new inflation target after 18-month strategy review

2 minute read

The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski

Register now for FREE unlimited access to

FRANKFURT, July 8 (Reuters) - The European Central Bank set a new inflation target on Thursday after an 18-month strategy review, hoping to bolster its credibility after undershooting its current objective for nearly a decade.

In a widely expected decision, foreshadowed by policymakers, the ECB set its inflation target at 2% in the medium term, ditching a previous formulation for "below but close to 2%," which created an impression the euro zone's central bank worried more about price growth above its target than below it.

Although the ECB said its target would be symmetric, it made no specific reference to tolerating an inflation overshoot after long periods of ultra-low price growth, a possible disappointment for investors who were looking for such a commitment that would ensure stimulus well into the recovery.

Register now for FREE unlimited access to

"The Governing Council’s commitment to this target is symmetric," the ECB said. "Symmetry means that the Governing Council considers negative and positive deviations from this target as equally undesirable."

The first strategy review since 2003 was among ECB President Christine Lagarde's top priorities and the project was launched immediately after she took over leading the bank from Mario Draghi in late 2019.

"The Governing Council also confirmed that the set of ECB interest rates remains the primary monetary policy instrument," it added. "Other instruments, such as forward guidance, asset purchases and longer-term refinancing operations ... remain an integral part of the ECB’s toolkit, to be used as appropriate."

Originally scheduled to take a year, it was delayed as policymakers focused on responding to the COVID-19 pandemic.

Register now for FREE unlimited access to
Reporting by Balazs Koranyi, William Schomberg and David Milliken; Editing by Catherine Evans

Our Standards: The Thomson Reuters Trust Principles.