European Central Bank (ECB) President Christine Lagarde announced a strategic shift aimed at enhancing communication in an increasingly unpredictable world. The ECB's updated strategy emphasizes the consideration of risks and uncertainties in policy decisions, alongside inflation and economic forecasts. This includes the use of scenario and sensitivity analyses.
The ECB has adjusted its approach to monetary policy, aiming for a balanced assessment of inflation risks and policy tools to achieve its 2% inflation target. The bank confirmed a symmetric approach to maintaining price growth at target levels, with a commitment to strong and lasting policy responses to significant deviations in either direction.
This shift marks a departure from the ECB's previous strategy, which focused on aggressive action when the economy neared its lower limits to prevent entrenched low inflation. The change responds to unprecedented inflation spikes in 2021 and 2022, which caught the ECB off guard and sparked criticism over delayed interest rate hikes.
The strategy adjustment was announced at the ECB's annual forum in Sintra, Portugal, initiated last summer to prepare for a more frequently disruptive economic environment influenced by deglobalization, decarbonization, and demographic shifts.
Lagarde acknowledged the previous strategy's lack of foresight, influenced by past experiences, and highlighted the value of a more adaptable approach. She noted that scenario analysis could have mitigated the risk of conveying false certainty to the public during the rapid economic reopening in 2021.
