ECB Changes Interest Rate Guidance

Source: ECB

Members of the European Central Bank have agreed to revise the interest rate guidance, according to the minutes of the July meeting.

• Members consented to align interest guidances with the price stability objective in the new monetary policy strategy.
• Revisions to the forward guidance would influence the understanding of the new strategy which was agreed upon unanimously.
• The new strategy provided numerical clarifications on the price stability objective, specifying the 2% symmetric inflation target.
• It also provided a “conditional commitment” that considers the impact of the effective lower bound when setting monetary policy.
• The forward guidance would indicate that policy rates could be raised only if conditions were “sufficiently robust,” and the council was confident that inflation would reach 2% on a durable basis.
• Key conditions include inflation hitting the target well in advance of the projection horizon and that underlying inflation was deemed to have made “satisfactory progress.”