raises the inflation target to 2% with flexibility to face crises

The ECB modifies its inflation target, which until now was a rate somewhat below but close to 2%, but confirms that "the Harmonized Index of Consumer Prices (HICP) remains an appropriate price indicator and recommends the inclusion of the property ownership over time ".

The ECB began the review of its monetary policy strategy at the beginning of 2020, but had to postpone it due to the coronavirus pandemic and instead of publishing the results at the end of last year, said it would do so in the second half of 2021. The Council Government carried out its previous review of the strategy in 2003.

The ECB now believes that the best way to maintain price stability is by targeting 2% inflation in the medium term. "This target is symmetrical, which means that positive or negative deviations from that target are just as unwanted," the ECB said in a statement.

But the ECB specifies that "when the economy operates close to the lower limit of nominal interest rates, particularly strong or persistent monetary policy measures are necessary to prevent negative deviations from the inflation target from taking hold."

This "could also imply a transitional period in which inflation is slightly above the target", so the ECB will be more flexible and accept these deviations.

The Governing Council has also confirmed that the ECB's interest rates remain the main instrument of monetary policy. Other instruments, such as the future orientation of monetary policy, debt purchases and longer-term financing operations, "will continue to be an integral part of the ECB's set of instruments and will be used as necessary," adds the entity.

The ECB indicates that it has used these extraordinary measures during the last decade to "mitigate the limitations derived from the lower limit of nominal interest rates".

ECB President Christine Lagarde stressed that the ECB's primary mandate is to maintain price stability and that the review has allowed them to "achieve a common understanding on how to adapt our strategy". "The new strategy is a solid pillar that will guide us in the execution of monetary policy in the coming years," Lagarde said.

The ECB acknowledges that the inclusion of costs related to owned housing in the HICP "would better represent relevant inflation for households and that such inclusion is a multi-year project".

Until then, the Governing Council will consider inflation measures that incorporate initial estimates of the cost of home ownership to complement its broader set of inflation measures in its monetary policy assessments.

The first regular monetary policy meeting of the ECB at which the new strategy will be implemented will be held on 22 July 2021. The ECB plans to regularly assess the adequacy of its monetary policy strategy and expects to carry out the next assessment in 2025.

Tackling climate change

The third leg of the strategic review, after inflation measurement and targeting, is the inclusion of climate change considerations. The ECB has decided to include this type of valuation in its strategy due to its macroeconomic implications.

"Tackling climate change is a global challenge and a political priority for the European Union," explained the ECB. Although he has recognized that the "primary" responsibility lies with governments and parliaments, he has explained that he will incorporate it into his strategy "within his mandate."

Specifically, the ECB will accelerate its development of new models and carry out theoretical and empirical analyzes to monitor the implications of climate change for the economy, the financial system, and the transmission of monetary policy through financial markets and the banking system.

The issuing institute will also develop experimental indicators for 'green' financial instruments and to record the carbon footprint of financial institutions, as well as their exposure to physical risks derived from climate change.

Objectives and deadlines for the digital euro

The governor of the Bank of Spain, Pablo Hernández de Cos, has said that in the coming weeks the Governing Council of the European Central Bank (ECB) plans to set the objectives and deadlines for a formal project on the digital euro.

"This will be a critical and strategic decision that will shape the future of the digital euro. It will be a decision with profound implications that can potentially extend beyond the realm of central banking and finance to impact on the digitalization dynamics of society in general." , he stated during his speech at the "DigitalES Summit 2021".

The governor explained that the Bank of Spain, as a member of the Eurosystem, is actively contributing to the development of a project that may be essential to configure an efficient European financial system in line with the increasing digitization of society.

Much progress has been made, he said, but research tasks are still pending, such as a greater specification of the technical characteristics that the digital euro should have or a more detailed analysis of its consequences in areas such as financial stability, monetary policy or configuration. and the role of the financial industry.

He recalled that the digital euro is conceived as a tool to stimulate innovation and act as a catalyst for competitiveness and growth.

It is also expected to be an essential support to safeguard monetary sovereignty and to help increase the foreign role of the currency and the ability to influence beyond the euro area.

Hernández de Cos has clarified that the digital euro does not intend to replace physical money or bank deposits, but would complement them, expanding the offer of means of payment.

In this regard, he stressed that it would be a third variant of money issued directly by the central bank, but it would have a digital representation, which could be used in a wide range of remote operations that are not possible with cash.