ECB gives itself a pat on the back

In 2021, the ECB presented the long-awaited review of its monetary policy framework. This was the first review since 2003 and had been delayed due to the pandemic. It also came on the eve of a prolonged and intense inflation surge. With the presentation of the 2021 review, the ECB announced an assessment of the 'new' strategy in 2025. Back in 2021, many ECB members still characterised the surge in inflation as transitory, an assessment that was soon followed by the fastest and sharpest monetary tightening cycle in the institution’s history. Against that backdrop, the 2025 review might have been expected to include a measure of critical self-reflection. In practice, however, the tone was less introspective and more of a reaffirmation that the ECB was on the right track.

What were the main takeaways from the 2021 review?

Not many. The most significant conclusion was the adoption of a symmetric 2% inflation target, compared with the previous “below, but close to 2%”. The review also addressed the inclusion of owner-occupied housing in the HICP (Harmonised Index of Consumer Prices) and an ambitious climate change action plan.

Is there anything new?

It doesn’t come as a surprise, but the ECB’s assessment of its monetary policy strategy review in practice is clearly positive and has a high degree of self-congratulation. It confirms the definition of price stability, the use of several monetary policy instruments, and the evaluation of the proportionality of its decisions and potential side effects. As expected, climate change features prominently, with the ECB reaffirming that "addressing climate change is a global challenge and a policy priority for the European Union. Within its mandate, the Governing Council is committed to ensuring that the Eurosystem fully takes it into account". Meanwhile, the ECB continues to advocate for the inclusion of owner-occupied housing in the inflation measure.

All in all, today’s ECB assessment of its own monetary policy strategy review is important as an institutional health check but will hardly have any new implications for the ECB over the coming months. Given today’s heightened geopolitical and policy uncertainty, no assessment or strategy review, however thorough, can substitute for a meeting-by-meeting approach.

Read the original analysis: ECB gives itself a pat on the back