ECB’s revamp of interest rate plans just first step, Philip Lane says

The European Central Bank's recent revamp of plans for interest rates is only a first step in implementing the institution's new strategy, according to chief economist, Irishman Philip Lane.

“The new monetary-policy strategy should be viewed as laying strong foundations for future decision-making,” he said in a blog post published on Thursday after the ECB lifted its inflation goal to 2 per cent last month following an extensive review. “The revision to rate forward guidance constitutes just the first step in implementing our new strategy.”

The comments suggest that the ECB is set to make further changes to the language it uses to describe the future policy path. The central bank pledged last month that it wouldn’t raise interest rates until it saw inflation durably reaching 2 per cent, aligning its plans with the new target.

Bank’s stance

Prof Lane stressed that when interest rates are near a point where it would be ineffective to lower them further, asset purchases and other liquidity operations can help reinforce the central bank’s stance. He also said the ECB was willing to use all of its tools to ensure that inflation reached its goal.

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Officials decided in July to save changes to its guidance on asset purchases for when they recalibrate their programmes later this year, people familiar with the matter told Bloomberg at the time. Some policymakers expressed concern that their current pledge makes a similarly long-term commitment to bond-buying as it does to low interest rates. – Bloomberg