As expected, the ECB held interest rates steady yesterday. The main story instead really is Christine Lagarde’s launch of a major monetary policy strategy review, against a background of ‘declining trend growth, slowing productivity [and] the legacy of the financial crisis’. Many expect to see the review result in an important change to the Bank’s income target, in the first major change of policy direction since Draghi stepped down.
Lagarde told the press yesterday that the review would ‘leave no stone left unturned’. What that will result in, in concrete terms, is not yet clear, however. The current target is 2%, but there isn’t agreement on how it would change. Some argue for an even stricter target, with underperforming being put in the same category as overperforming, while others argue that it should be symmetrical, with the ability to go over as much as under.
While this means there’s much uncertainty to come, it does also mean that it’s unlikely that monetary policy will change in the period until the publication of the review.
Eurozone consumer confidence remains low, still at -8.1 from the previous month, despite expectations of a small rise. Today’s flash PMI figures have shown little change from the previous month. The markets will be looking forwards to Christine Lagarde’s speech at 10:30, and it will be interesting to see if any further information emerges on the upcoming review.
