Sunday, November 27, 2022

Euro Flat as ECB Wary of Adopting Fed’s New Inflation Measure By


© Reuters.

By Yasin Ebrahim – The euro was flat on Monday as European Central Bank members reportedly downplayed expectations that it would adopt the Federal Reserve’s average inflation targeting measure, cooling bets on central banks allowing inflation to run above target.

fell 0.14%, to $1.1808.

Several ECB policymakers appeared reluctant to follow the Fed with an average inflation target on concerns it could lead to unrealistic expectations about future policy decisions, Reuters reported, citing ECB unnamed sources.

“We want flexibility so an average target would not really give us a benefit,” one of the sources said, according to the report.

For years, the central bank has targeted an inflation policy of “below but close to 2%.” A move toward average inflation targeting would see the ECB allow inflation to run above its 2% target for some time to make up for periods of sluggish price increases. In recent years, eurozone inflation has remained short of the bank’s target. A move toward a Fed-like average inflation targeting measure could allow inflation to run hot to make up for periods of lagging price pressures.

Just weeks ago toward the end of September, Christine Lagarde suggested that in the current environment of lower inflation, the concerns that the central bank faces are different than those in 2003, and would need to be reflected in its inflation aim.

The sluggish move in the euro comes as signs the second wave of Covid-19 is starting to weigh on growth and attracting the attention of the central bank. 

“High-frequency indicators point to (the economy) losing a certain momentum  […]  We will have new projections in December and will assess how adequate the package is according to new projections but we don’t have a concrete date” ECB Vice President Luis de Guindos said in a live interview with the Institute for International Finance, Reuters reported.

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