23.01.2020 16:50:06

Lagarde Launches Broad Review Of ECB Policy Strategy

(RTTNews) - European Central Bank President Christine Lagarde on Thursday launched a broad review of the bank's monetary policy strategy, which she said will cover "a whole host of issues" ranging from the inflation target to the impact of climate change.

"The review will have to do with how we deliver, how we measure, how we communicate when it comes to decision making, publication, outreach," Lagarde told reporters in Frankfurt. A review of the ECB's monetary policy strategy was last undertaken in 2003.

"We cannot operate as we did back in 2003, which doesn't mean to say that we have to change this, that and the other, but we have to look comprehensively at the effectiveness of our monetary policy," Lagarde said.

The process is expected to conclude at the end of the year. Policymakers will listen to expectations and concerns of the people, the ECB chief said. The ECB chases inflation of "below, but close to 2 percent", but price growth has kept away from this target for years.

The central bank, under Lagarde's predecessor Mario Draghi, took several extraordinary steps such as asset purchases to achieve price stability and support the euro area economy.

The latest of such stimulus measures announced in September attracted severe criticism from some fellow policymakers.

At the end of October, Draghi stepped down as the only ECB chief thus far who did not raise interest rates during the eight-year tenure.

Eurozone interest rates were raised last in July 2011 by 25 basis points.

The Governing Council left the key interest rates, asset purchases and forward guidance unchanged earlier on Thursday. The main refi rate is at a record low zero percent, and the deposit rate is at -0.50 percent after it was cut by 10 basis points in September 2019. The marginal lending facility rate is at 0.25 percent.

The strategy review will look at the potential side effects of low interest rates, Lagarde said.

As ECB policymakers are likely to remain busy with the strategic review this year, markets are now expecting any change to interest rates, mostly probably a cut, only in 2021.

Lagarde took several questions on climate change during her post-decision press conference and said that various ECB departments are working on embedding climate change in risk assessment, models, and forecasts. "This is work in progress," she said. "Environment and sustainability is very prominent in our strategy review."

"Climate change is a threat that his hardly measured and taken into account by actors," Lagarde added. Acknowledging concerns that whether climate change is a matter to be debated by central banks, Lagarde said, "I'm also aware of the danger of doing nothing. Failing to try is already failing."

Quizzed on the Brexit set to happen at the end of January, the ECB President said there were good reasons to believe banks are "well prepared" for the event.

Further, Lagarde said the Phase One trade deal reached between the US and China has helped to ease the trade tensions, but its impact on the euro area economy is yet to be assessed. Risks to the Eurozone growth outlook remain tilted to the downside, but are now less pronounced as some global trade tensions have eased, she said in the introductory statement.

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