ECB Turning More Dovish

​The European Central Bank strategy review brings the inflation target to 2% and officially introduces symmetry. Essentailly, the most significant change is the modification to its numerical inflation target from ‘below, but close to 2%’ to a ‘symmetric 2% target’ over the medium term.

The main highlights from the ECB's strategy review:
​

• Symmetry at or around 2%. “The Governing Council considers that price stability is best maintained by aiming for  2% inflation over the medium term. The Governing Council’s commitment to this target is symmetric. Symmetry means that the Governing Council considers negative and positive deviations from this target as equally undesirable.”
• Focus on underlying inflation. The statement “this may also imply a transitory period in which inflation is moderately above target” has alot of relevance for the current situation and tells us there is more of a short term focus here, rather than what many might have thought - that this strategy had a long term horizon!
• Asset prices. There had been some discussion on whether or not to include asset price developments into the ECB’s price stability target. The review concludes that the consumer price index remains the ‘appropriate measure for assessing price stability’ but that the ECB will “take into account inflation measures that include initial estimates of the cost of owner-occupied housing to supplement its set of broader inflation measures”. This makes sense because if they included real estate prices when prices are at elevated levels, then it would just add fuel to the easing bias over the next few years.
• Greening monetary policy. The ECB announced an action plan which will include changes to the collateral framework and changes to the corporate asset purchase programme.

Overall, there were no surprises here but what it does tell us is that the ECB are turning more dovish. There has been an emphasis on higher inflation during transitory periods and this apporach will head off any discussions of tapering over the summer months.