QUOTES-Reactions to the ECB Strategy Review


LONDON, July 8 (Reuters) – The European Central Bank set a new inflation target on Thursday after its strategy revised to 18 months, hoping to bolster its credibility after underestimating its current target for nearly a decade .

He said he would also further integrate climate change considerations into his monetary policy, the latest in a series of moves by the world’s largest central banks to recognize that their policies must take climate change into account.

Below are some comments from investors and analysts on the announcement of the ECB’s strategy review:

CHRISTOPH RIEGER, RATE AND CREDIT RESEARCH MANAGER, COMMERZBANK, FRANCFORT

“The tendency to tolerate higher inflation runs deep in the thinking of the ECB. They stress the importance of having an inflation cushion.

“There is a justification for them to act forcefully against the risks of low inflation that they see emerging.

“Tying that with some of the other colors we’ve seen from the ECB recently underscores its determination to keep policy flexible and allow inflation to settle to higher levels.

“In the end, real returns are at record highs and it will continue.”

MARCHEL ALEXANDROVICH, EUROPEAN FINANCIAL ECONOMIST, JEFFERIES, LONDON

“They put a lot of emphasis on greening monetary policy, which we knew was coming.

“The point of symmetry is something Lagarde has been talking about for some time. All other things being equal, the new target allows council doves to advocate for the ECB to continue with accommodative monetary policy.

“Inclusion of housing costs in the HICP index – the question for me is what kind of weight will that have. Potentially, this is an important decision, but it does not appear to have an imminent impact on politics.

“Regarding the QE of corporate bonds, they will take into account the companies’ approach to climate change. If there is corporate QE, some companies that do not make adjustments could potentially be excluded. There are a lot of gray areas and we don’t have the details yet.

STEFAN LEGGE, ECONOMIST, UNIVERSITY OF ST GALLEN

“The ECB’s announcement hardly surprises me. It has been clear for some time that higher inflation will not only be tolerated but targeted. This is politically very tempting because the benefits come first and the (substantial) costs often a decade later.

“As usual, we have to be careful with the wording. First, even if the methodology for measuring inflation will be updated, it will likely still underestimate the price impact of an eased monetary policy.

“Second, what the ECB (and the Fed) call ‘symmetrical’ is likely to be asymmetric: a period of inflation below 2% will be used as a rationale for expansionary monetary policy, but a period of expansion is unlikely. Inflation above 2% should be followed by a period of restrictive policy.

“Who expects the ECB to follow a restrictive policy in, say, 2024 or 2025 when inflation was above the target in 2021-2023? Over what period should the average inflation rate be calculated, what number of years constitutes the medium term?

DIRK SCHUMACHER, HEAD OF EUROPEAN MACRO RESEARCH, NATIXIS

“The inflation target is the most interesting part.

“While a catch-up strategy – to compensate for when inflation is lower or higher – has some theoretical appeal, it is complicated and the Fed’s simulations have shown that it would not help much.

“So in the end, they decided not to go, which was to be expected.” (Compiled by the Global Finance & Markets Breaking News team, edited by Peter Graff)