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ECB Shadow Council Minutes Most Members opt for a symmetrical inflation target

Most members of Handelsblatt’s Shadow ECB Council are in favor of a more symmetrical inflation target of two percent when it comes to the strategy review of the central bank.
11.12.2019 - 19:34 Uhr Kommentieren
The European Central Bank wants to start its monetary policy review soon. Quelle: dpa
ECB's headquarters in Frankfurt.

The European Central Bank wants to start its monetary policy review soon.

(Foto: dpa)

Several of them would also introduce a tolerance band of plus/minus one percent around that.

Growth and Inflation forecasts remain unchanged

Compared to three months ago, members of the ECB Shadow Council are keeping their inflation forecasts at 1.2 percent for 2019 and 2020 respectively. They are also keeping their forecast for 2021 at 1.4 percent. For 2022 they foresee an inflation rate of 1.6 percent.
The mean forecast for this year’s GDP growth remains at 1.1 percent. The members also maintain their 2020 forecast at 1.0 percent and their 2021 forecast at 1.3 percent. For 2022 they project a GDP growth rate of 1.4 percent.

Shadow Council macroeconomic forecasts (ECB’s September projections in brackets)
HICP-Inflation*GDP-Growth
20191.2 (1.2)1.1 (1.1)
20201.2 (1.0)1.0 (1.2)
20211.4 (1.5)1.3 (1.4)
20221.61.4

Contributors: D. Antonucci, M. Annunziata; A. Bosomworth; J. Callow; F. Ducrozet, J. Henry, J. Krämer, D. Schumacher, K. Utermöhl.

*Harmonized Index of Consumer Prices, a weighted average of price indices of eurozone countries.

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Standort erkennen

    Symmetric inflation target

    According to the SC members, the strategy review of the ECB should focus on several areas: the inflation target, the measurement of inflation, the ECB’s policies and tools, transparency and climate change. Concerning the inflation target, most members would be in favor of a more symmetric goal of two percent. The main argument is that this would be clearer and simpler than the current definition. It was also mentioned that this would reinforce the credibility of the ECB’s Forward Guidance. One member argued that this could be also a starting point for a strategy of average inflation targeting, where the ECB will make up past misses of the inflation target in the future. Others, however, were more skeptical about this idea. Several members would also favor the introduction of a symmetrical band of plus and minus one percent around the two percent target.

    Inclusion of Owner Occupied Housing (OOH) in the inflation rate
    Concerning the inflation measure it was argued that it should include OOH. Several members said that this would better reflect the reality and also relieve monetary policy a little bit as it would add around 0.3 percentage points to the current inflation rate. If the ECB would have targeted such prices in the past, monetary policy might have been more accommodative in 2012 and 2013 but less accommodative from mid-2017 onwards, said one member.

    There was a widespread consensus that the ECB should also review its monetary policy tools and their side-effects. Several members emphasized that this should involve a deeper analysis of the costs and benefits of the negative rate policy, as well as QE. Some members argued that the ECB should also improve the transparency of its decision-making process by publishing the voting records of its monetary policy meetings and more comprehensive minutes.

    Climate Policy

    The members argued that climate policy should be the responsibility of democratically-elected governments. Some members, however, argued that the ECB could contribute to such policies by incorporating climate risks into their internal models or by making potential changes to its collateral framework and asset purchases. It was emphasized that this should only happen without prejudice to its primary mandate of price stability.

    Members’ individual votes on the ECB’s deposit rate (currently minus 0.5%):

    MemberAffiliationDeposit rate        
    José AlzolaThe Observatory GroupUnchanged       
    Marco AnnunziataAnnunziata Advisors Unchanged
    Daniele AntonucciMorgan StanleyUnchanged
    Elga BartschBlackrockUnchanged
    Andrew BosomworthPimcoUnchanged
    Sylvain BroyerS&P Global RatingsUnchanged
    Jacques CaillouxRokos CapitalUnchanged
    Julian CallowElement CapitalUnchanged
    Frederik DucrozetPictetUnchanged
    Janet HenryHSBCUnchanged
    Jörg KrämerCommerzbank +0.1
    Thomas MayerFlossbach von Storch
    Dirk SchumacherNatixisUnchanged
    Katharina UtermöhlAllianzUnchanged               

    Frankfurt, Germany
    December 10th, 2019
    Written by Jan Mallien

    Background information
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