ECB to potential revamp of the inflation target – Danske Bank

Danske Bank analysts note that a Bloomberg story yesterday suggested that informal analysis has begun at the ECB about a potential revamp of the inflation target.

Key Quotes

“This mirrors a discussion the Governing Council already started at the June meeting about the need to adopt a more "symmetrical" interpretation of the inflation target, i.e. where the ECB would tolerate inflation above the target to compensate for persistent undershooting in recent years.”

“Although we think such a switch to a more state-dependent and less calendar-based forward guidance could help alleviate the risk of de-anchoring inflation expectations, as it strengthens the easing bias, we do not see such changes as imminent - and is also highly dependent on whether the markets believe the ECB could achieve an overshooting.”

“For now, the ECB's prime focus should be on delivering a convincing easing package at the September meeting. Nevertheless, it could be the advent of a discussion that gains further traction under a Lagarde-led ECB.”