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Policy makers at the European Central Bank have agreed on their first approach for nearly two decades. It will be announced on Thursday and will have to adjust for inflation, which will also help with climate change and house prices.
The 25 members of the central bank’s governing body met Wednesday in Frankfurt to discuss the results of 19-month review. It was not due to be announced until September but after the decision was reached, the ECB President Christine Lagarde wanted to end the talks.
The ECB announced Wednesday that “major elections” would be announced at 13:00 CET (12.00 GMT) on Thursday, after which Lagarde and vice-president Luis de Guindos presented the results at an online press conference.
This review should make significant changes to the ECB’s approach.
The most important change is the one that defines its role as “price stability”. After years of failing to raise inflation to its target, the ECB is expected to meet its “near, but low, 2%” target, which is considered to be in short supply and means interest rates on inflation.
There is universal support for the council with a clear target of 2%. The central bank needs to ensure that the new target is the same, which is why policymakers should be concerned about continuing as it stands. The goal should be to achieve a long-term goal of flexing each side over a short period of time.
However. The ECB should not go to the US Federal Reserve, which is committed to achieving inflation to further his purpose creating a period of low-cost growth.
Jacob Nell, Europe’s chief financial officer at Morgan Stanley, said he expected the change to be “a small part of the financial impression soon” as the central bank had already adopted the approach.
But he said some of the expected changes would have “negative consequences in the long run”.
Since taking over from Mario Draghi in November 2019, Lagarde has urged the ECB to address the growing public and political concerns of climate change. This idea is expected to be relevant to the new concept after it has already been challenged by other council members.
The central bank is expected to announce the plans for a change of pace in its financial management. It will divert its supply chain and operating rules away from high-pressure companies that have no way of meeting the EU’s target of zero zero by 2050.
The amendment will likely be in place for a number of years as it will require extensive disclosure by companies and the established EU green system for investors, which will define areas where the climate is favorable.
The central bank will also respond to public perceptions that monetary policy does not pay enough for inflation, forcing the EU accounting agency Eurostat to increase housing by calculating its prices.
House prices are rising in many parts of Europe and this change could lead to 20 prices, according to a recent ECB study. In some cases, they even reduce the cost of living.
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