European Central Bank launches review that will redefine its mission and tools

Darnell Taylor
January 25, 2020

The ECB first introduced negative interest rates for the 19 countries that use the euro in 2014 in a bid to boost inflation and economic activity following the region's debt crisis.

The ECB announced it was holding the headline interest rate unchanged at 0% and the deposit rate unchanged at -0.5%.

But the outlook for euro zone growth and inflation remains lukewarm, meaning the European Central Bank is likely to strike a cautious tone by reaffirming its warning about "downside risks" to the economy.

"We have to look comprehensively at the effectiveness of our monetary policy", President Christine Lagarde told reporters at a press conference in Frankfurt. It is the first such strategy review since 2003. Draghi was one of the most powerful and respected central bankers in the world, and currency markets often reacted to his comments.

The European Central Bank has left all its key interest rates unchanged, as was widely expected, and its bond-buying program at €20 billion per month.

Meanwhile, ECB rate-setter Klaas Knot said the bank should clarify its inflation target, now defined as an annual rate of price growth below but close to 2%, so that it means the same to everyone.

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The euro hovered around $1.1085, against the US dollar on Thursday after the ECB's announcement.

Changing the ECB's formulation of price stability - now defined as an annual inflation rate below, but close to, 2% over the medium term - will be the focal point of the review. This is her second rate-setting meeting and investors will be looking for any hints as to how the ECB's year-long strategic review might pan out.

But policy hawks on the Governing Council, who have long called for the ECB's money taps to be shut off, will not go down without a fight.

Her efforts to modernise the organisation include potentially resetting the inflation goal which targets a level of "below, but close to, 2pc", as well as studying alternative measures of price growth and assessing its policy tools.

She said she would focus on listing to the concerns of ordinary citizens and communicating in way everyone can understand.

"It's a broad exercise", Lagarde said.

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