ECB adopts 2% inflation target over medium term

FRANKFURT -- The European Central Bank (ECB) said on Thursday that it has approved a new monetary policy strategy that adopts symmetric 2 percent inflation target over the medium term.

"The Governing Council considers that price stability is best maintained by aiming for a 2 percent inflation target over the medium term. This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable," the ECB said in a statement.

The ECB noted that it requires "especially forceful or persistent monetary policy action" to avoid negative deviations from the inflation target becoming entrenched, when the economy is operating close to the lower bound on nominal interest rates. "This may also imply a transitory period in which inflation is moderately above target," it added.

The ECB has long been targeting inflation "below but close to 2 percent". The change of diction came after an 18-month strategy review of monetary policy, launched in January 2020. It was postponed for about six months due to the COVID-19 pandemic.

ECB President Christine Lagarde previously promised to "leave no stone unturned" in the strategy review, which was set to cover topics including quantitative formulation of price stability, monetary policy toolkit, analyses and communication practices, as well as considerations such as financial stability, employment and environmental sustainability.

The ECB Governing Council on Thursday confirmed that the Harmonised Index of Consumer Prices (HICP) remains the appropriate price measure, while recommending the inclusion of owner-occupied housing in HICP over time, adding that the full inclusion would be "a multi-year project."

It also confirmed that the set of ECB interest rates remains the primary monetary policy instrument. Other instruments such as forward guidance, asset purchases and longer-term refinancing operations "will remain an integral part of the ECB's toolkit, to be used as appropriate," it said in the statement.

The ECB also announced an action plan to include climate change considerations into its policy framework.

The ECB's last strategy review was conducted in 2003. The Governing Council said it intends to assess periodically the appropriateness of its monetary policy strategy, with the next assessment expected in 2025.