New monetary policy strategy of the European Central Bank – september

New monetary policy strategy of the European Central Bank – september

The Governor of the Bank of Spain explained last September 17, at the Barcelona IESE Business School, the new monetary policy strategy of the European Central Bank (ECB). The new strategy was published by the Governing Council of the ECB on July 8, ant it considers that the best way to maintain price stability is to have an inflation target of 2% in the medium term. This 2% objective is symmetrical, unlike what happened until the approval of the new strategy.

According to the Governor of the Bank of Spain, the main reason for reviewing the strategy has been the inflation below 2% in recent years, as it’s detailed in the following data:

  • 2013: 0.85%
  • 2014: -0.17%
  • 2015: 0.09%
  • 2016: 1.10%
  • 2017: 1.34%
  • 2018: 1.52%
  • 2019: 1.33%
  • 2020: -0.27%

Adding the symmetry to the 2% inflation target means that the ECB won’t need to act to combat, with specific monetary policies, higher inflation, unlike what has happened up to now, because the medium-term objective is to have an inflation compensated by periods with higher price increases that will compensate the significantly lower increases in the 2013-2020 period.

The Harmonized Consumer Price Index (HICP) of the Euro Zone for the month of August was 3%. Inflations of 3.28% per year for the next few years, for the period 2021-2029, would be price increases compatible with the new strategy of the ECB.

If excessively low interest rates, even negative depending on countries and debt terms, had been a great difficulty for savers, now, with positive allowed inflation, the loss of the purchasing power of savers can be very important, and can even reach a negative 30% in the medium term.

It will be necessary to work diligently, and always advised by professionals, to reverse this situation and be able to help savers to become investors who achieve positive returns above inflation, minimizing the risk.

This situation has been caused, once again in our western economic history, by excessive government debt. The well-being of our societies has advanced exponentially, but now it is time to undo the imbalances, before launching the economy again.