Key change to the ECB statement in July

A new forward guidance is introduced after the strategy review findings

There is one key change to the ECB statement today and while this is more to do with language rather than actual implications on policy, it is worth taking note.

The change relates to the forward guidance. Here is the one in June:

The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

That has been changed to:

In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.

The second part of that passage is arguably the more important one, that is the ECB acknowledging higher inflation pressures and that they may accept an overshoot.

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Now, with inflation pressures in the euro area still somewhat transient, or perhaps even absent considering core inflation still below 1%, it can be argued that we might not reach the point where we will be debating any tightening in policy – let alone an overshoot.

But the fact that the wording is in there just means that policymakers intend to at least keep the more accommodative stance going for long i.e. preaching patience like the Fed. That is a key thing for the market to acknowledge regardless.

The euro may not have much to work with but on the balance of things, this leans more towards a dovish step although it may not be one that is realised.

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